Rethinking the Reform Question [1 ed.] 9781443808545, 9781847183972

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Rethinking the Reform Question

Rethinking the Reform Question

Edited by

Ann Marie Bissessar

Cambridge Scholars Publishing

Rethinking the Reform Question, Edited by Ann Marie Bissessar This book first published 2007 by Cambridge Scholars Publishing 15 Angerton Gardens, Newcastle, NE5 2JA, UK British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Copyright © 2007 by Ann Marie Bissessar and contributors All rights for this book reserved. No part of this book may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. ISBN (10): 1-84718-397-2, ISBN (13): 9781847183972

TABLE OF CONTENTS

Preface ....................................................................................................... vii Chapter One................................................................................................. 1 The Challenge of Institutional Reform Gerald E. Caiden; Naomi J Caiden Chapter Two .............................................................................................. 24 Post New Public Management Reforms-Exploring the “Whole of Government” Approach to Public Reform Tom Christensen; Per Laegrid Chapter Three ............................................................................................ 46 Public Sector Reform in Jamaica Philip Osei Chapter Four.............................................................................................. 79 Facts, Myths and Monsters: Understanding the Implementation of Public Sector Reform in SVG Steve Stewart Chapter Five .............................................................................................. 96 Managerial Autonomy, Political Control and New Public Management: The Quest for a Corporate Culture at the Guyana Revenue Authority’s Custom and Trade Administration Talia Choy; Michael E Scott Chapter Six .............................................................................................. 131 New Public Sector Reform in Trinidad and Tobago Ann Marie Bissessar Chapter Seven.......................................................................................... 158 Transformation of Public Utilities: The Buenos Aires Concession Roland Baptiste

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Chapter Eight........................................................................................... 173 Public Private Partnerships: Applicable Laws and Governance Principles Sieglen Burleson Chapter Nine............................................................................................ 196 Creating a Regulatory Framework for an Independent Regulator Albertina Salina Chapter Ten ............................................................................................. 220 Audit Committees and Globalization: Spontaneous Convergence versus Regulatory Fiat Anthony R Bowrin; Donald Gribbin Contributors............................................................................................. 263 Index........................................................................................................ 268

PREFACE

There can be no dispute that the New Public Management (NPM) movement, which started in the late 1970s under the Thatcher government, has had a catalysistic effect worldwide in both the developed as well as the developing countries. Since the 1990s, when Christopher Hood (1991) first coined the term New Public Management, there has been an explosion of academic and practical interest in the “new “development. Some, like Pollitt, suggested NPM was a new form of what he termed “entrepreneurial” government while others, like Barzelay, believed it was “managerialism” applied in the context of the public sector. Whatever, its nomenclature, though, it was clear that NPM was not only universal in its appeal but that it has extended beyond administrative boundaries into the political arena and indeed acted as a “trigger” for the movement away from a government-mode of administration to new forms of “governance.” From the now rich literature of case studies, evaluations of countries experiences and critiques of the theory and practice of NPM, it has become clear, however, that although there are certain basic principles in the NPM discipline these have not evenly applied in all countries. While some countries, including New Zealand and Australia, have recorded major successes, others, particularly the developing countries seemed to have lagged behind. This book has its origins in an international conference, which was hosted by the Department of Behavioural of Sciences, the Faculty of Social Sciences, St Augustine Campus, Trinidad, and West Indies. Major funding for this conference was sourced from Government Ministries, including the Ministry of Science and Tertiary Level Education, The Ministry of Education, The Government Printery, the Ministry of National Security, The Ministry of Agriculture and the Ministry of Social Services. The conference attracted academics from around the globe and included gurus in the field of Public Administration such as Ali Farzmand and Jean Claude Garcia-Zamor. The main intention of this conference was to understand the phenomenon of NPM more implicitly and learn from the experiences of the developed countries. It was felt that this kind of “lesson drawing” would certainly have been beneficial to the Caribbean as a whole. However while the conference itself was an overwhelming success, emerging out of the conference was a startling revelation- NPM was now

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passé having been replaced by joined-up-government or a whole of government approach to service delivery. The conference debates revealed that many of the NPM philosophies, more so the introduction of a markettype emphasis has led to little or no improvements in public sector productivity. The result is that more governments are now retreating to their original position of state control. But as Hood (1994) had pointed out in his now famous book Economic Policy Reversals, this reversal should have not been surprising as many ideas are merely “recycled versions of doctrines which have had their day before.” The major aim of this book is therefore to carry the discussion of NPM further. Chapter one sets the context for the book. In this chapter Gerald and Naomi Caiden, drawing on extensive literature, argue for the enhancement of democratization and the eradication of corruption. Tom Christensen and Per Laegrid, draw on comparative experiences of post NPM reforms and the introduction of Joined-up-Government (JUG) or a Whole of Government (WOG) approach to public sector delivery. At the end of their paper, however, we are left with the question of whether these concepts are indeed sustainable. The third chapter is a more in-depth study of the Jamaican experience of NPM while the chapter, which follows, looks at the experience of St Vincent and the Grenadines in implementing reform. In comparing the countries of Jamaica and St Vincent and the Grenadines it is evident that Jamaica has had more success in introducing NPM and has adopted the “agency model” of public sector delivery largely along the lines of the Anglo Saxon countries. Administrative reform in the smaller islands of St Vincent and the Grenadines, however, seems to have had limited success largely due to political interference in the process. Similarly in the case of Guyana, while the Revenue Authority’s Customs and Trade Administration was restructured to reflect the NPM philosophy of autonomy, it seems that the concept is maintained in theory rather than practice. The writers contend that the lacks of funding along with political control are significant challenges in reforming this agency. In the case of Trinidad and Tobago, it is argued that while NPM reforms are advertised using glossy page magazines, on the ground very little improvement has been made to public sector delivery. The solution offered, is that the Government of Trinidad and Tobago needs to introduce well thought out, long terms solutions and practices. In Chapter seven, while the writer investigates reform initiatives in the Public Utilities in Buenos Aires, he suggests that much of the success in this country was due to stakeholder management. The idea is also reinforced in the chapter on Public-Private Partnerships, which follow. However, in this chapter the

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writer moves beyond merely a stakeholder discussion and looks at corporate governance and argues that there should be stringent guidelines with regards to the issues of procurement, governance and regulations. The final two chapters continue the theme of regulation and auditing in the context of the public sector. In both chapters, though, the overarching theme is to benchmark regulatory processes against international practice. As usual, I have been greatly helped by discussions with my husband John La Guerre who is Emeritus Professor of Government. I was also inspired by a brief discussion with Professor Evan Berman who took time from his busy schedule to discuss publication challenges with a virtual stranger. Professor Gerald Caiden was always there with his “what’s up” and Professor Joyce Liddle always kept the faith. I have learnt immensely from the late night discussions I had with Professor Tom Christensen who attended the conference. To these persons and indeed all the contributors, I am indeed grateful. Last but by no means least I wish to thank Nievel, Lystra and many of my students who assisted me in putting the conference together. To Ms. Eversley who, not only formatted the text but also noticed all the typos, I wish to say thank you for working with so short notice.

CHAPTER ONE THE CHALLENGE OF INSTITUTIONAL REFORM GERALD E. CAIDEN, THE UNIVERSITY OF SOUTHERN CALIFORNIA; NAOMI J. CAIDEN, CALIFORNIA STATE UNIVERSITY, LOS ANGELES

Public administration experiences cycles with old ideas being repackaged and revised for a new generation and new ideas eventually becoming the dominant force of the day. So, too, administrative reform goes through similar fashionable cycles whenever the performance of the public sector falls below public expectations as every so often happens whenever it is unprepared for a disaster or succumbs to slow entropy. As the pace of change quickens, so disasters and entropy become more common and administrative reform has come more important and central to public administration practice. Recently, it has been captured by the transformation of government to governance, and this enlargement from strictly public sector reform to institutional reform, something much grander and needless to add much more difficult to achieve. Reformers know what they want to do but are still largely puzzled how to go about their task. Two global institutional reforms have been chosen to illustrate the challenges of going beyond traditional administrative reform into what amounts to large-scale societal transformation. Democratization has had mixed success with sporadic impressive gains but has come up against many a blank wall elsewhere. The global campaign against corruption has witnessed more lip service than effective execution, formal victories but often informal setbacks. This was to have been proved by several country case studies but only one is available and that has been made into a separate paper. All of this raises the question whether administrative reform can be turned into institutional reform.

The Challenge of Institutional Reform The relatively short history of the social sciences reveals that one sees fads and fancies catch on and just as quickly fade away and drop out of

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sight for the duration, only to be rediscovered and revised later on in a new guise. When this is pointed out, the new generation, eager to make its immediate mark and alas only too ignorant of what has already gone before, heaps scorn on such critics. A good illustration of this was the late Professor R. N. Spann, who held the chair in public administration at Sydney University. He was bold enough to express his iconoclastic thoughts to the Australian Political Science Association in August 1980 in an address, which he jokingly might have entitled Half-Truths and Fictions in Public Administration. The same phrases are suddenly on everyone’s lips, similar ideas crop up in all kinds of quarters - what have been called ideas in good standing. They last a while, and then vanish, sometimes without a trace, being replaced by a new fashion. The rationale of this process is frequently obscure. Fashions are not perhaps beyond explanation, but not mainly in terms of the situations with which they purport to deal... Many of the central problems leave us baffled, and new ones arise when we seem to be solving old ones, so it is tempting to substitute gimmickry or fantasy for inventiveness (Spann 1981, 12). Spann actually used the term administrative cloning to describe this process of Rediscovery, Resurrection, Reinvention and Reinvention of old ideas under new guises and new names. He pointed out that rarely was there anything new under the sun as most new ideas had a long history if one cared to delve into the past. There were just swings of the pendulum, which he illustrated with numerous examples. He raised more ire when he went on to enumerate sheer fantasies which he described as “persistent day-dream[s], especially of a wish-fulfilling and extravagant character (ibid. 19), such as perfect systems of management control and other suchlike rationalistic notions, brazenly ignoring past failures and pressing on regardless (ibid. 20). But it is not just the oldsters who appear iconoclastic when they chide the newcomers. In the field of public administration, the youngsters too appear iconoclastic when they scold their forebears for sticking on to old ideas when new times demand new ideas. In the 1940s, Herbert Simon and Dwight Waldo appeared just as iconoclastic when they challenged contemporary administrative thinking. Twenty years later, the young bloods challenged the old guard in their quest for a New Public Administration as opposed presumably to the old or traditional public administration. Another twenty years later, the New Public Management movement came along to challenge the presumably old public management, as did the new public policy schools and the fans of reinventing of government, who quickly adopted the term governance to

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denote their radical departure from traditional public administration with its devotion to the interventionist administrative state, governmental monopolization of public services, and bureaucratism. These recent arrivals in their turn resented being put in their place by the traditionalists who, like Spann before them, were discomforted by the recloning, the renomenclature, the distancing, and the lack of reality and experience of those who would discard too much of what has been time-honoured and proven in favour of the risky and untried. Charges and counter charges of iconoclasm aside, new concepts and new inventions have made a profound impact on administrative performance over the past century or so with an increasing tempo of change in administrative arrangements and practices especially over the last few decades. Administrations best positioned to take advantage of them have reaped great benefits and have distanced themselves from those systems far worse positioned, which have barely experienced any benefit at all. Despite the widening gap, the overall general human condition has improved, with most people living longer and better. Unfortunately, left behind have been the many victims of slavery, malnutrition, violence, disasters, accidents, and human cruelty, greed, and indifference. Otherwise, people living today consider themselves better off than any previous generation and are grateful to be alive today than yesteryear. The aged have the advantage of being able to put things into a longer perspective. If memory permits, they can look back and select benchmarks by which to compare the contemporary to the past. They see youth rediscover paths sorely travelled and previously abandoned. Undaunted by their warnings, they witness idealistic and enthusiastic youth strive to overcome the odds and succeed where nobody has succeeded before and every so often they do make the breakthrough which makes all their effort and sacrifice worthwhile, rarely maybe as far as they initially thought they would advance but a good deal farther than anybody else had gone before. Their achievements make up for the faint hearted who dropped out along the way, the timid who dropped too far back to take any credit, and the over bold who ventured too far ahead for their time and martyred themselves for their cause, among them the unsung heroes who actually pioneered the way. Not many aged stay the course. They become disillusioned, tired, distracted, enfeebled, embittered, cynical even. They lose confidence in their mission, and in their frustration, turn to criticism and even impede progress with their mantra that it was not meant to be, that human nature cannot be changed, that that’s the way things were meant to be, so don’t even bother to attempt to change things that cannot be changed.

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Such has been the fate of much reform. But not all reform. Clearly, economic reform has done well for most of humankind, as has a good many political and social reforms. At least, these have shown the way toward betterment if only people would break the bonds that bind them to the past, if only they would raise their sights, if only they would seize the initiative to change directions, if only they would strike out against human arrangements that harm them. The trouble is that when they do act, they are too ill disciplined or too impatient or overly ambitious, that they descend into mob rule, violence, and chaos. They have to be guided and managed on a large scale and that entails organized law and order, process, and bureaucratism, the very same instruments that tyrants employ to keep them in line in getting anything done. Throughout the history of civilization, this Iron Cage has been found to be indispensable, dependable, and effective. It worked and it needed little tampering with. Too much chopping and changing would confuse, unsettle, raise fear (of the unknown), and tax people’s capacity to adjust. Admittedly, every once in a while, it did get out of sync with the times and need attention, but nothing really radical beyond incrementalism was needed as to overdo alterations would probably make things only worse and potential disaster might threaten to undo everything. Better to play safe by reducing the risk. Keep people’s confidence in the system and do not let them despair to the point where anything would be better because it could turn out to be far worse. This cautionary approach has probably best been exemplified in the realm of administrative reform seen as periodic interference warranted either by some unexpected breakdown when things had deteriorated unsuspectingly too far or when some new administrative invention had been unduly delayed by vested interests in the status quo. In the first case, slow, overlooked deterioration could occur whenever things continued to function after a style, as long as performance was deemed acceptable, and nothing untoward happened to attract undue attention, anyway nothing much out of the ordinary except for the few discontented in any administrative system who always think things could be done better, complainers who could be safely ignored as long as no serious malfunction occurred. Once disaster struck, the system had to be fixed through reforms that promised to right things again at least for the foreseeable future (that is, until the next disaster). Meantime, with the reforms in place (something that could involve a period of inconvenience and adjustment), things could return to normal and everyone could relax again. In the second case, the system jogged along without any setbacks but it would fall further and further behind its potential because some

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innovation had come along but had been deliberately (and obviously) ignored that its competence had come into question by the watchful both within and without. An outmoded system had been allowed to remain in place. It did not reinventing but not very much because the reinventing had already been done elsewhere and all that was required was imitation and some local adjustment or some additional mechanism, nothing too complicated that could not be fitted in, given good will and capacity to make it work. In the past, because the pace of change was so slow, disasters were infrequent and not that many administrative innovations came on the scene. As the pace of change has accelerated, so the potential for disaster has increased and the number of inventions has likewise increased. It has become increasingly imperative to put into place warning signals, safety checks and reliable indicators that things are not going as expected. Automatic triggers and fail-safe devices are more and more desirable. What better than performance measures, reliable planning, and accurate forecasting? So the search has intensified for the state of the art in related fields, some actually quite distant and involving the latest advances in the natural sciences. But not to be outdone there has been an upsurge too in the social sciences and business methods. With the revolution in information technology, there has been a flood of administrative inventions and innovations that keeping up with developments has become more complex but at the same time easier and cheaper. No longer is the search for better ways and means of conducting public business a onceand for-all activity. It now has to be continuous and institutionalized. It cannot be left to chance or to individual initiative, as once may have been the case when the pace of change was not so hectic. It came of age at least a decade ago. The problem is no longer lack of information but an overabundance. There is just too much to sift through and too much that changes so quickly so that by the time the new has been adopted it is already out of date. This is so much truer of the whole field of institutional reform. Potential reformers are better informed than at any previous time in history about what does or does not work, under what circumstances the chances of success improve, according to what assumptions, and with what likely outcomes. It is no longer so much a question of what to do as to how to proceed and what needs to be done to reduce the odds against possible failure. If reform were that easy, it would not be reform. The essence of reform is overcoming resistance, sometimes fierce and overwhelming resistance. In the end, reformers probably have to compromise and stop short of what they plan and intend, and they may have to be content with

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getting anything better than the status quo ante, however far short of their goals, and return another day to try again in more auspicious circumstances. The role of the iconoclast is to keep the feet of reformers on the ground at all times and not to allow them to indulge in flights of fancy or sheer fantasy, to exaggerate what they expect to achieve, to discount or under estimate the tribulations which beset them, and to console them and urge them not to lose faith when the going gets really tough and they border on total defeat. Here, a sample of current global attempts of institutional reforms will illustrate this rather complicated task of the iconoclast. A start will be made on the democratization campaign, followed by the anti-corruption campaign. Both campaigns have been receiving increasing international support over the past two decades as witnessed by resolutions carried in global conventions with scarcely any dissent and through assistance programs offered by international development agencies and well established wealthy democracies. Only fringe groups have openly opposed making institutions, primarily governmental, more transparent, representative, accountable, and honest. Otherwise, the mainstream has voiced its opinion that the world would be a safer and better place if people were more socially active in their communities to ensure greater awareness, responsibility, and integrity in the conduct of human affairs.

Democratization To avoid controversy over the what exactly constitutes democracy and how the extent of democratization can or should be measured, countries are taken at their face value, that their governments describe themselves as democracies, that they rule in the name of the people (Lukacs, 2005), even though they may and probably do fall short of what others might consider acceptable (World Bank, 2005). Similarly, debates over empowerment are avoided, i.e., empowerment of groups and organizations outside the formal machinery of government that run themselves virtually beyond the reach of government. Clearly over the past two or so decades, democratic elections have become the rule rather than the exception and the expansion of democracy and human rights is the outcome of a growing demand of peoples in an interdependent global society (Munez 2005, 1). What follows is guided by the precepts of the Community of Democracies established in Warsaw in June 2000, and the Democracy Caucus currently active within the United Nations in New York. Despite differences in meaning and interpretation, the democratization process is commonly understood as a retreat from tyranny, dictatorship,

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absolutism, and totalitarianism, and an advance toward improving human rights, civil liberties, freer access to information, and a more open society. It entails the encouragement of rival political parties, free and fair elections, representative assemblies, and greater empowerment of the weak and disadvantaged. It encourages constitutionalism, respect for the rule of law, independent and impartial judiciaries, and neutral, fair, and humane law enforcement. It implies some transformation of the status quo, the redesign of institutions, transfers of power, and provision for different stages of transition. Inevitably, it is likely to be resisted by those who believe that they are going to lose by democratization, and being so threatened they are probably going to be intractable in holding on to their invincibility. Besides their dominance over socialization, education, and propaganda, they will use their position and overwhelming power to tighten their grip of society through their use of terror to command obedience and conformity (at least outwardly), their ability to cream off or bribe possible dissenters to win them over, and their capability of crushing opponents. Clearly, democratization favours the Western liberal reformist interpretation of democracy in contrast to the Cold War’s version of a people’s democracy, a revolutionary approach based on a single party dictatorship that would be a transition to a new Marxist style order. With the collapse of the Soviet Union and other Communist regimes, the Marxists have had to reformulate, reinterpret, and update their version of democracy which still goes beyond the liberal version of legal, political, and civil rights to include opposition to imperialism, the abolition of all privilege, an end to all discrimination, and the replacement of capitalism. They remain revolutionary rather than evolutionary. They expose the sham of Western reformist liberalism in which the inequalities of power, wealth, private property, and competition would still prevail to legitimize world domination, war, inequality, and injustice. Instead, they take advantage of liberalism to capture the hearts and minds of the masses, composed of the disadvantaged, victimized, persecuted, neglected, and abandoned in a capitalist society, and by winning an electoral majority set about creating their version of a true people’s democracy. So, how well has the democratization movement been faring since the early 1990s? It can claim reasonable success, certainly in the former Communist regimes, none of which have returned to the fold. Although their Communist parties remain a force to be reckoned with and could be returned to office at any time where the electorate has become disillusioned with liberalism and democratization, they are unlikely to return to the status quo ante for that would revive bitter memories of the

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past. Nonetheless, it is still possible to contrast the present with the past, so that people who claim to be worse off may well look back than forward but even these are unlikely to support any return to totalitarianism and to re-embrace Mother Russia. Moves in that direction would re-alight the very fears that brought the Soviet Union crashing down. Democratization among the countries of the former Soviet Union may not have progressed as far as its advocates would have hoped but with an economic upturn its prospects are likely to improve and bury the past. If not, a non-Soviet style of absolutism could well return. Outside the former Soviet Union, democratization has had similar mixed results. It has done better outside the die-hard states of North Korea and Cuba where as long as their present leaderships continue in power, it will probably continue to fare poorly. Otherwise, most Marxist influenced regimes have succumbed in some fashion. Reality belies lip service to the old Marxist slogans, which have become virtually meaningless, especially in the rest of the Third World. Thus, Indo-China has been moving away from Communist style totalitarianism more so than China itself. Yet, even there, economic advances have begun to force changes in the style of leadership of its Communist party. The exception is in Latin America where populism, reviving old Marxist slogans, has begun to return with renewed vigour in several countries, without as yet replacing dismantling democratization. Again, as in the former Soviet Union, the underlying cause is lack of economic progress, not ideology. Democratization faces a much more serious challenge from its traditional non-Marxist absolutist opponents, which have steadfastly resisted its overtures. Authoritarian regimes still manage to convince their peoples that there are more important values than liberalism and that democratization worsens not improves their situation. In Latin America, Asia and Africa, authoritarians claim that they can remedy abject poverty blamed largely on the machinations of international economic organizations and the imperialistic interventionists (meaning the United States and its allies) that dominate those organizations whereas in the Middle East, militant fundamentalists claim that its dominant religion of Islam is being undermined by non-believers who want to upset the whole social order. The two sets make common cause but with different outcomes. The former set has had some success with democratization whereas the latter set has defied democratization. In Latin America, some twenty-five or so years ago, there was barely a handful of democracies. Currently, the reverse is true; there is barely more than a handful of absolutist regimes excluding Communist Cuba. Admittedly, few democracies are that firmly secure that they could not

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conceivably reverse direction once again. Economic disaster could see the man on horseback returning to restore his law and order either by coup d’état or the ballot box, given the vote-rigging, corruption, intimidation, and fraud that does exist in the region. Certainly, poverty and discrimination make democracy vulnerable, as evidenced by violent protests sparked by scandals, disaffection, and loss of credibility of elected leaders who have failed to relieve local austerity imposed by the International Monetary Fund. Asia is much more diverse than Latin America so that such generalities cannot be said of the region. Democratization has had its obvious qualified successes in India, Singapore, and Malaysia but its advocates tend to exaggerate their claims. The multiplication of political parties may just denote the fragmentation of a previously dominant autocratic party whose splinter groups remain autocratic. One free election may be a fluke as the winner reimposes previous restrictions, outlaws its major rivals, and imprisons their leaders. Creating a brand new democracy with staying powers takes more than a generation or two and may proceed by fits and starts. Like Latin America, ghosts of the past along with their cronies have a habit of returning and reimposing the status quo ante whereas elsewhere in Asia, as in Africa, new faces appear and some reshuffling of fragile elites. When can it be said in any country that democracy has finally arrived? India boasts of being the most populous democracy in the world for decades but what percentage of its citizens believe this of their particular situation? Its neighbour, Pakistan, is also considered in some circles to have incorporated democratization but it falls well short of democracy. Not so, the Republic of Korea and Thailand which have joined the democratic club. On the other hand, Nepal has regressed. Other countries in the region, as with several small states around the world, pose as democracies, parade their formal democratic characteristics, and speak of how much progress they have made since independence, but they still fall short. Too much of the South is as autocratic as it has always been. That is certainly true of Africa where the number of democratic countries (some 16 of 54) is far fewer than in Latin America but many more than twenty-five or so years ago (some 4). Accurate figures are hard to come by as opinions differ so widely about how far this or that state has progressed toward democracy, if at all. Clearly, the bulk, like the Democratic Republic of the Congo, has made little or no advance in democratization and some have had the same ruling clique for over three decades. Amongst those that had made some progress during that period, the Central African Republic, the Ivory Coast, and Zimbabwe have regressed. On the other hand, the dictatorship of Sani Abacha was so

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traumatic that the threat of any possible return to such absolutism has advanced Nigeria even if only a little. This is much like the rest of subSaharan Africa where military rule has largely been eclipsed and remains plagued by instability, ethnic conflict, violence, corruption, and brain drain, not exactly encouraging circumstances for anyone to remain for the sake of institutional reform. The trappings of democracy bequeathed by the former colonial rulers had for a time been too associated with foreigners and did not command respect. But Africans had failed to introduce anything of their own invention other than military coups. Yet, there have been notable standouts like Senegal, Ghana, Botswana, and the offshore Sao Tome & Principe, Mauritius and the Seychelles, along with South Africa and Mozambique lately. Against this, the New Partnership for Africa’s Development (Nepad) has had almost no impact leaving the president of the Free Africa Foundation, George Ayittey, to remark: In Africa, we haven’t really sat down to think through this process of democracy, to institutionalize it... [M]ore African countries will implode because of the adamant refusal of their leaders to implement real democratic reform. (Financial Times 2003, 13)

One of Africa’s successes since 1992 has been in multiethnic Islamic Mali, bordered by Algeria in the north which has prevented fundamentalist Moslems from taking over the country in free elections and the former democratic Ivory Coast which has since descended into ethnic civil war. Its long history of coexistence and religious freedom has spared Mali of religious radicalism and ethnic strife, which thwarts democratization in the rest of Africa and the Middle East. In the words of President Toure: We are carrying out a unique, original experiment - building a democracy according to our own values, according to the way we Malians are, committed to solidarity, to consensus and to dialogue... We see nothing in our religion that would prevent us from becoming democratic... Development needs peace and stability first... but we also have to allow everyone to speak out, so everyone feels involved with the country’s fate (The Wall Street Journal 2004, A12).

This contrasts with much of the Islamic bloc elsewhere other than its fringe countries in the Balkans, Turkey, the former Soviet Union, and perhaps Indonesia where democratization has had its ups and downs, mostly downs. The ups at one time have included Iran, Iraq, Kuwait, Algeria and Lebanon. Promises to reform are legion but with little follow through. Liberty remains restricted. Human rights are not enforced. Police states thrive. Authoritarianism continues, as has always been the case

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whoever has ruled. The peoples in this vast empire have never experienced democracy and do not know what they have been missing. Religious values rate higher than individual freedom and democratic virtues. In any event, democracy has been frequently interpreted as a foreign imposition, an invasion of alien ideas, a symbol of cultural imperialism, a challenge to religious authority, a corrupter of innocents, an evil that has to be avoided at virtually any cost. Since the peoples have no choice, they have to go along with what concessions their (mostly secular) rulers have been prepared to make (and unmake). As far as democratization is concerned, their fundamentalists make no mistake about where they stand. With the creation of the State of Israel in 1948 and the foreign invasions of Afghanistan and Iraq, they have become more strident. Democracy, in all its variations and interpretations, is based on principles and foundations, the most important of which may be summarized as follows: First: Democracy is based on the principle that the people are the source of all authority, including the legislative [authority]. This is carried out by choosing representatives who act as proxies for the people in the task of legislating and making laws. In other words, the legislator who must be obeyed in a democracy is man, and not Allah. That means that the one who is worshipped and obeyed and deified, from the point of view of legislating and prohibiting, is man, the created, and not Allah. This is the very essence of heresy and polytheism and error, as it contradicts the bases of the faith [of Islam] and monotheism, and because it makes the weak, ignorant man Allah’s partner in His most central divine prerogative namely, ruling and legislating... Second: Democracy is based on the principle of freedom of religion and belief. Under democracy, a man can believe anything he wants and choose any religion he wants and convert to any religion he wants, even if this apostasy means abandoning the religion of Allah... This is a matter, which is patently perverse and false and contradicts many specific [Muslim] legal texts... Third: Democracy is based on considering the people to be the sole sovereign, to whom all juridical matters and conflicts should be referred, and if there is any controversy or conflict between governor and governed, each of them threatens the other to refer the will of the people and its choice, so that the people should decide on the matter on which is disagreed. This conflicts with and is contradictory to the principles of monotheism, which determines the arbiter, deciding by His judgment in matters of discord, is Allah and none else . . .

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Fourth: Democracy is based on the principle of freedom of expression, no matter what the expression might be, even if it means hurting and reviling the Divine Being [i.e. Allah] and the laws of Islam, because in democracy nothing is so sacred that one cannot be insolent or use vile language about it. Fifth: Democracy is based on the principle of separation between religion and state, politics, and life; what is Allah’s is rendered unto Allah, which is just worship in the places designed for it. All other aspects of life are the people’s prerogative. Sixth: Democracy is based on the principle of freedom of association and of forming political parties and the like, no matter what the creed, ideas, and ethics of these parties may be. This principle is null and void according to [Islamic] law... [V] oluntary recognition of the legality of heretical parties implies acquiescence in heresy . . . Seventh: Democracy is based on the principle of considering the position of the majority and adopting what is agreed upon by the majority, even if they agree upon false-hood, error, and blatant heresy... This principle is totally wrong and void because truth according to Islam is that which is in accordance with the Koran and the Sunna... [D]emocratic experiments have had damaging consequences for the Muslims, causing weakness, controversy, division and conflict... (AIZarqawi 2005)Similar anti-democratic sentiments have been stated by other Muslim fundamentalists, summed up by one of AI-Zarqari’s mentors, Issam Muhammad Taher Al-Burqari: ... [D]emocracy is the vile fruit and illegitimate daughter of secularism, because secularism is a heretical school of thought that aspires to isolate religion from life or separate religion from state and law, and democracy is the rule of the people or the rule of the tyrant. But in any event, it is not the rule of Allah the Exalted, and it does not take the unswerving legislation of Allah into account at all... (AI-Burqari 1989)

Other fundamentalists in urging the Iraqis not to participate in the January 2005 elections warned that democracy in Muslim countries would constitute great corruption. As a result, progress has been slow (Economist, 2006, 42). In order to dissociate themselves from such harsh opposition, secular and moderate Muslim leaders in the Middle East, Africa and Asia, are likely to bow to democratization pressures in small but nevertheless significant symbolic ways that will please the international community and will give heart to their peoples to push for more. The momentum has definitely shifted in the favour of democratization and any change can be interpreted as a plus. The going will continue to be tough in some parts of

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the globe, such as the Middle East, and there may be some regression, as in Latin America should populism make a come back. But for democratization to be accelerated, there needs to be further demonstration by the traditional democracies that they themselves are not slipping into bad habits, that they are not turning a blind eye to defaults in their democratic systems, that they are broadening the meaning of democracy and adapting it to a new technological world favouring autocracy, the concentration of power into fewer hands, tokenism, and bureaucratism. Above an, democracy, however defined, has to face the growing feelings of powerlessness, alienation, indifference, and dissatisfaction with institutional performance that seem to be infecting electorates attributable to the sense that corruption is not being sufficiently contained and is damaging the credibility of institutions and public leaders together.

Facing Corruption Whereas democratization can claim success for any advance in human rights, free elections, and the peaceful transition of power, institutional reformers battling corruption have few if any benchmarks by which to measure their successes. Corruption by its very nature is secretive, furtive, hidden, not so much as to individual acts which may be quite blatant, even brazen, as to its extent and penetration of any institution. In the worst cases, corruption may be so institutionalized as to be the normal condition, the regular way of transacting public business, not just a fact of life but also the customary way of life that has existed throughout the ages for time immemorial. Indeed, flaunting one’s corruption shows how powerful one is and how powerless are others to do anything about it. Autocracy, by definition, is a corrupt system and those who exercise autocratic rule are by extension corrupt or corrupted because they take advantage of the deprivation of inferiors’ liberty, human rights, and representation. It is no coincidence that autocratic regimes rate the highest on any international scales of corruption and those democratic polities rate the lowest. Nor is it any coincidence that the most corrupt regimes rate among the poorest as corrupt societies and institutions do little to encourage societal investment over conspicuous consumption but reward immoral and unscrupulous behaviour, particularly exploitation and greed, and promote the export of mobile capital and brains. Democratization runs up against the barrier of corruption because while the corrupt hold sway, there is little inclination on their part to democratize for surely they will lose out, being the major beneficiaries of a corrupt system. They are unlikely to have the political will to deprive

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themselves of their advantages, position, and ill-gotten rewards. Hence, an integral part of democratization is combating corruption in all its forms. There can be little genuine change without dethroning the corrupt. Political will is the key. Building the political will to tackle corruption is the hardest part. Where corruption is embedded, it is expected that one exploits position or office to benefit oneself and one’s supporters and punishes opponents. That is what power is about. That is what everybody does and one would be foolish to abstain and allow oneself to be weakened by not following the rules of the game. Even if one is well intentioned and personally honest and above reproach, power has its privileges. One becomes accustomed to the trappings of office that include deference, favours, convenience, honours and an exulted life style, and the possibility of losing them is hard to take. Then, there are all the pressures from family, friends, well-wishers and supporters to share in one’s fortune and indulge a little if not for oneself then at least for them. As Lord Acton remarked, power does indeed corrupt and absolute power absolutely. Everyone is vulnerable and without all the institutional safeguards imposed by democracy, few can hold out for long. Insistence on those institutional safeguards is acknowledgement that democracy’s moral imperative on individuals to rule impartially in the public interest even in the best of systems is fragile and the temptations to venture off can be overwhelming. So global campaigns to combat corrupt look for exceptional individuals who will not succumb to temptation, whose strength of character shines, whose moral rectitude is unimpeachable, and whose example is likely to attract a following among the incorruptible and the idealistic. Thus, Transparency International, headquartered in Berlin since the early 1990s, uses moral persuasion as its main strategy by hoping to embarrass countries when it publishes its annual corruption rankings to reform themselves and by using its country branches to show its anticorruption flag locally. The problem here is that many of the governments of the countries that most need reforming show total indifference and there are no local TI branches because of intimidation. Some leaders are stirred into action by international disgrace and do attempt reforms to curb corruption but find that their circumstances and the extent and penetration of corruption within defeats their efforts. Likewise, TI branches that have been established in notably corrupt countries are isolated and find few listeners: they are voices in the wilderness. What these global campaigns do is to demonstrate international support for individuals and groups willing to stand up and confront corruption, give them comfort and technical assistance, and try to rescue them when they are endangered but

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they can do little else. Occasionally, they make a significant impact and their presence ensures that what gains are made are not just temporary flashes in the pan that disappear once the spotlight is turned off and attention fades. Where the global campaigns do not rely on moral persuasion, they give technical assistance in all manner of anti-corruption measures that have worked in democratic polities, from devising legislation to establishing independent judiciaries, from reducing the penetration of international organized crime to retraining local police forces, from hindering money laundering to establishing merit systems. The outside experts work hard with local counterparts and together they devise all manners of institutional reforms until they hit a brick wall. They get so far and then they get no farther. Their reforms do not implement themselves; the intended implementers just sit on them and take no further action. When at last the reformers do manage to get a responsive hearing, too many modifications and concessions are made so that avoidance and evasion undermine the purpose of reform. Or when actually formally implemented, a new generation of corrupt brokers and dealers easily get around the reforms and their criminal ingenuity hoodwinks law enforcement. As soon as one loophole is closed, so others, more sophisticated and deceiving, open up. The reform outsiders lose heart and the insiders get frustrated with their fruitless attempts that merely mark them out for being poor games players at best and untrustworthy and dangerous at worst. This disappointing reality is echoed in the bold statement made by one of the most energetic researchers into governance and corruption: Myth #7: Fight corruption by fighting corruption. A fallacy promoted by some in the field of anticorruption, and at times also by the international community, is that one fights corruption by fighting corruption through yet another anticorruption campaign, the creation of more commissions and ethics agencies, and the incessant drafting of new laws, decrees, and codes of conduct. Overall, such initiatives appear to have little impact, and are often politically expedient ways of reacting to pressures to do something about corruption, substituting for the need for fundamental and systemic governance reforms (Kaufmann 2005, 42).

The reformers are not attempting the impossible. They are not seeking the end to corruption, merely its reduction to being an incidental fact of life rather than a whole way of life, turning it from pervasive, harmful forms to minor, inconsequential forms. To do this, they realize that they need to have public opinion on their side. They have to promote and heighten civic consciousness, communal pressures, and civil action. They

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have to convince the many victims of corruption to stand up for themselves and understand that things can and should be changed. Scarce resources are being unfairly harvested by the wrong people and diverted from worthy causes helping the deserving. Only with the overwhelming support of the fearless masses can democratization and anticorruption succeed. Somehow the good word has to be spread and the educated masses organized against the most hated and resented forms of corruption. The revolution in information technology has brought within reach of all but the most isolated of images of what can happen when the masses do rise up against their victimizers, of how powerless the mighty become, and how things can be quickly turned around with determination. Valid first time elections can be held. Fraudulent votes can be overturned. Unpopular leaders can be deposed. And corrupt officials can be prosecuted and their nefarious activities halted. The global campaigns are indeed spreading the word and promoting civic action. But this all takes time, resources, energy, and perseverance, there are more important things that have to be tackled first, and tackling corruption does not seem to have that kind of political sex appeal. One drawback is that the prompting comes from the outside and because it is foreign there is resentment and suspicion that all is not as it may seem. Those outsiders have an agenda of their own and they are too much associated with international organizations and government agencies that have not been too friendly in the past. Many poor countries have their grievances against the World Bank, the International Monetary Fund, and the United Nations Development Program, for example, for worsening their plight through their detrimental policies. The major stance of these international organizations is set by their governors who are unrepresentative of the best interests of the world’s poor and over representative of the rich. They themselves do not follow the very principles and practices that they preach and are tainted by their own corruption. After all, in the past they have supported and protected corrupt regimes, just like the assistance agencies of the ex-colonial powers which may now be using them as a neo-imperial instrument, the very powers which have actually exported certain types of corruption and colluded with corrupt leaders. Only lately do they profess to have seen the light when it was obvious long ago. If the truth be known, they are not much better than the countries and administrative systems they lecture. Available evidence does suggest that currently seems to be even more corruption in the world and amongst countries supposedly with the highest reputation for clean hands, despite advances in controlling it in most parts

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of the world. The scale of corporate business fraud alone in the United States in recent years dwarfs almost any other country as does the shenanigans of political party financing. But then party financing in other Western liberal democracies is also worrisome. Special interests seem to have an inordinate say in public policy making. The Iraqi Oil for Food program has besmirched the administration of the United Nations. The European Union has been damaged by a courageous whistleblower who revealed how many top people had their hands in the till. Not a day passes when more and more charges about corruption in high places are aired and how many prove to be true after reliable investigation. But is there really more corruption than there has ever been? Is there more corruption today than a decade ago? For positive, there is more exposure and there is more attention, and it may well be that what is exposed represents only the tip of the iceberg. But there is no knowing. All that can be done is refine exploratory studies, recalibrate the indicators, standardize universal definitions, study the findings of anticorruption commissions, establish individual benchmarks, hold countries to international conventions and resolutions, and encourage victimization surveys. And these things are now being done, which is something that cannot be said of yesteryear. Whether anybody can ever discover the depth of the slime is most doubtful. The corrupt have ample means at their disposal to discourage uninvited investigation and they do not shrink away from destroying anyone who comes too close. The corrupt are not to be underestimated in their ingenuity to overcome restrictions and impediments and to open unimagined avenues for new ventures that profit them. The corrupt retain the means to blunt and undermine if not overcome anti-corruption measures. The corrupt are clever at covering up their tracks and manipulating the naïve and innocent to front for them. As economists have come to acknowledge, self-interest is a powerful motivator and its use for bad has to be balanced against its use for good. Not all corruption is bad for under certain circumstances it can speed up business, overcome bureaucratic inertia, encourage entrepreneurship, reduce violence, and possibly spread wealth to under-represented minorities; and such corruption for good has its backers too. It should not surprise that the World Bank admits that its anti-corruption effort has achieved in its words only modest success because country leaders are content with the status quo (World Bank 2004, 41, 51). The corrupt merely take advantage of what is available to them in any normally functioning society. Currently, the World Bank estimates that corruption is over a trillion dollars business with rich countries receiving more than poor countries receive in foreign aid (World Bank 2004, 25). To

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shut the corrupt off is to interfere with the smooth running of contemporary society. If money laundering were considerably reduced, especially out of the most corrupt regime, then the banks which receive such corrupt profits would suffer too and it so happens that many such banks are found in democratic countries in Europe and the Caribbean with reputedly honest administrations. If the loans to poor corrupt countries were written off, then the corrupt would have gotten away with their ill gotten gains (and the rulers of some thirty sub-Saharan countries who own private overseas assets equivalent to 145% of their countries’ debts and some 40% of privately held wealth there would not be made to repay them) and honest people who lent the money in good faith would have been robbed officially (Daily Telegraph 2005). The abolition of illegal kickbacks for obtaining international business, the heart of anti-bribery efforts, would probably transform competitive bidding and some currently prosperous countries would lose employment and pull. The revelation of personal records would breach individual human rights although that may be the only way to track down what happens to central government finance when as much as half may be unaccounted as in Brazil and Ghana. In brief, there are few universal reforms that can be applied everywhere. Rather, a series of questions has to be first posed. Where is the general population being most victimized? What forms of corruption are most handicapping development? Which anti-corruption instruments are most likely to work without unforeseen adverse effects? Who is most reliable and trustworthy to follow through anti-corruption measures? When has sufficient time elapsed to gauge the impact of a reform campaign? How can the reform momentum be continuously recharged? If the reformers have miscalculated, how can reform be put on a more promising path? When is enough, enough?

From Administrative Reform to Institutional Reform? Much of the above was written in 2004-5 and was halted by the author’s serious illness. It was expected that several of the author’s doctoral students would provide country case studies from around the globe to illustrate the generalized approach. Unfortunately, many were too lengthy and only one has been selected to accompany this paper. Meantime co-panelist Professor Toshiyuki Masujima completed his detailed history of recent administrative reforms in Japan which also illustrates much of what is written here. The major issue raised is that successful administrative reform is a difficult enough challenge but to undertake institutional reform without a proper understanding of local

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circumstances and culture is fraught with dangers and may turn out to be self-defeating. As many of you may know, I intended to publish a book on the progress of administrative reform every decade or so. I managed to do that at the beginning of the 1990s decade (Administrative Reform Comes of Age, de Gruyter, Berlin and New York, 1991). But by the time I got around to collecting materials at the turn of the Millennium, the whole field had been transformed by the replacement of government with governance, at least in the USA and among selected international organizations, most notably the World Bank. Originally, administrative reform had referred to radical administrative changes taking place in the public sectors of states and dependencies that accompanied radical political changes, constitutional overhauls, and ideological shifts. My belief was that all these dramatic developments would not really amount to much on the ground unless and until there were sweeping transformations in their administrative states, i.e. in the way public organizations operated, particularly how they interacted with the people they supposedly served. At the time, just a few years ago, most political democracies had not gone very far in democratizing their public bureaucracies and most economic or people’s democracies still relied heavily on authoritarian single party regimes. Now, all that seems so quaint, old-fashioned, narrowly focused, and blinkered. The emerging global society had already strengthened the role and power of international bodies and with that the call for real as opposed to sham global governance. Global problems and challenges demanded global solutions and global cooperation. The visionaries of global government of yesteryear, the spirits behind the International Red Cross, the League of Nations, and the United Nations Organization, were once again on the march. But today’s visionaries have widened their scope from the realm of government to that of governance to include not just governmental institutions but the whole family of societal institutions including kinship, civic, non-governmental, economic, business, religious, and cultural, i.e. all social and communal organizations that exercise authority over individuals. What disunites these advocates of greater global governance is whether or not all organizations that exercise such authority should be governed by the same operating principles and the same ground rules that include accessibility, accountability, transparency, participation, nondiscrimination, and decency. The public sector community, with its emphasis on public morality, is mostly on one side while the business community, with its emphasis on the market system and private morality,

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is mostly on the other side. In some sense, this all still remains at heart administrative (or instrumental) reform. But it is much more than that, no less than institutional reform, particularly of global organizations, whether governmental or not, that at present fall so far short of these working ideals. For example, Transparency International, a private organization, is not that transparent and publicly accountable as one might suppose from its title, not about its own internal workings or how it constructs its various indices of corruption and bribery. Nor are some bodies of the UNO exactly accessible, participatory, and non-discriminatory, as recent discussion about reforming the UNO have revealed, particularly from small countries and poor countries who feel themselves virtually shut out. Nearer at hand are the governments of independent countries, or rather the governance that operates within the set boundaries of states, which are no longer sovereign, their being subject to the international super-structure that restricts and limits their authority. If, at this stage of history, little can be done about institutional reform at the international/global level of governance, better luck may prevail with institutional reform at country/state level that also includes all subordinate levels of governance as well. This implies that administrative reform is no longer about transforming the administrative state per se but transforming governance, the relationships between societal institutions that exercise authority within a single country/state, a group of states, or a country association. If so, this is a much more difficult task than the old administrative reform, and that was taxing enough. Now, experts are attempting not just to reform the way that the administrative state operates but the way all societal institutions interact or at least some of them beyond the traditional confines of government or purely state/political/public authority. Have we now fully recognized that public and private authorities have to be on the same page, so to speak? Can contemporary society function effectively if they are at odds with one another, if they act at crosspurposes, if they undermine one another’s efforts? Historically, there has always been this ubiquitous clash between public and private authority, with emphasis on first one and then the other in never ending rivalry as to where public ends and private begins, or if you prefer, where private ends and public starts. But in the contemporary global society, bitter competition is dysfunctional, if it has not always been so. Ways and means have to be devised that working compromises, a mutual sharing of responsibility, make for the attainment of common outcomes. This involves not just agreeing on the rules of the game or how level the playing field has to be, but also on genuine partnership, mutual assistance, and a shared sense of public morality in meeting people’s needs. Such

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cooperation involves the abandonment (or at least the desertion) of entrenched vested interests and the cooptation of reluctant participants intent on pursuing their lonely path regardless. How does one embark on such institutional reform? One should not underestimate the task, a challenge that goes well beyond traditional administrative reform, traditional public administration, traditional political science, traditional social science. Excluding the sordid history of pre-Second World War colonialism that should have been the lesson taught from what appears to have been the highly successful institutional reform in transforming the defeated Axis powers of World War II. But it must be recalled that these defeated counties were among the most developed countries in the world. They had taken a wrong turn but it was believed that they could be righted with different leadership. They had suffered a national trauma but although bewildered by defeat, they could be expected to recover again with different governance and outside assistance. They had been occupied so their immediate future was no longer in their hands but those of the victors who were determined to bury their immediate past as quickly and completely as possible. Furthermore, the occupiers were prepared to invest hugely in their redirection, reconstruction, and recovery, and they had compulsory powers over both the defeated populations and their own armed forces which contained much of the talent needed for their rehabilitation. Finally, the victorious allies were not clueless about exactly what they wanted to achieve vis-àvis the defeated Axis countries. So institutional reform has been done before and quite well. But it was nowhere near as successful in transforming colonies into newly independent states in the decades that followed World War II. Many of the newly created independent states were artificial creations composed of a mélange of diverse peoples without much common history except under the immediate past colonial experience. They were mostly poor, they had been exploited, they had been prevented from competing with their imperial masters, they had been neglected, and they had had very little experience in running their own affairs. They relied much on what had been bequeathed to them by their former masters, which varied according to their geographical location, degree and kind of investment, soundness of state and public service, and postcolonial readiness to assist. They largely depended on new leaders of various hues ranging from passive colonial functionaries to violent revolutionary upstarts, from devoted and dedicated nationalists worshipped by their enthusiastic followers to selfserving opportunists without much local support or connections. They

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expected assistance from international bodies and rich countries (especially USAID) all of which had their own agendas but in any event lacked sufficient resources to make a profound difference to their situation. They fell victim to international rivalries and competition, not by any means in their best interest. Finally, there was little interest in the progress of several of them which just dropped out of sight and mind of leading world powers. There were successes but on the whole the record has been disappointing. And the record has not been that much brighter in transforming the socalled transitional societies that have rejected totalitarianism but have yet to achieve a satisfactory replacement. As with the defeated Axis countries and the newly independent states, the international community seems agreed that what these transitional societies need, and probably most other poor countries need too, is assistance with democratization and assistance with combating corruption. In this paper I have tried to assess the progress of these two global campaigns, and then focus specifically on institutional reform in two very different parts of the world, namely Chile and Kyrgyzstan. We do not rate the anti-corruption campaign, despite all the hype given it and several global conventions condemning corrupt practices, highly at all but fear that the extent of corruption has possibly increased and that several of the international agencies and countries leading the campaign are hardly good examples themselves. But then corruption is hard to define and harder still to identify, being such a secretive activity, that what we may be witnessing is more of its exposure thanks to the global campaigns than its actuality. As to democratization, I am even more in the dark, trying to discern truth from propaganda. Progress has undoubtedly been made, but it again falls well short of expectations. Hence, we turn to the two individual case studies, both of which have largely gone into institutional reform on their own terms. All this raises crucial issues of how to go about institutional reform. Are the best results gained by occupation and imposition until a new generation becomes accustomed to the implants? Or is it imposing institutions based on successful models elsewhere or getting rid just of the institutions that prevent progress and development according to international criteria and hoping that the local people will devise better institutions either by themselves or with international assistance? And where do we start, with countries that show the most promise or with the utter failures which demand priority in institutional reform, countries in which frankly nobody else much gives a damn, and can remain at the bottom of the pile for the foreseeable future?

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References The literature on administrative reform, institutional reform, democratization, and combating corruption is so vast and accessible on computers that only references quoted directly in the text are listed below. Otherwise, there would be hundreds of items constituting a bibliography much longer than the text itself. The authors have much relied on their previous publications, a list of which can be obtained by email or regular mail. Al-Burqari, Issam Muhhammad Taher, 1989, Democracy is a Religion o/Heresy, website http://memri.org/bin/articles.cgi?Page=archives&Area=sd&ID=SP856 05, on 1 February 2005, p. 3. Al-Zarqari, Abu Mus’ab, 2005, “Democracy is the Very Essence of Heresy, Polytheism, and Error”, translated taped speech addressed on 23 January to the Iraqi people posted on Islamist websites, http://memri.org/bin/articles.cgi?Page=archives&Area=sd&ID=SP856 05 pp. 1-2. Daily Telegraph (London), 2005, 5 February, p. 2. Economist, 2006, July 1, “Not yet, thanks,” pp.42-3 Financial Times (London), 2003, II April, p. 13. Kaufmann, D., 2005, “10 Myths about Governance and Corruption,” Finance & Development, Vol. 42, No. 3, pp 41-43. Lukacs, J., 2005, Democracy and Populism, New Haven, CT, Yale University Press. Munoz, H., 2005, Democracy Rising: Assessing the Global Challenges, Boulder, CO, Lynne Rienner. Spann, R.N., 1981, “Fashions and Fantasies in Public Administration,” Australian Journal of Public Administration, Vol. 40, No.1, pp. 12-25. The Wall Street Journal, 2004, 22 June, pp. AI, A12. World Bank, 2004, Mainstreaming Anti-Corruption Activities in World Bank Assistance. Report No. 29620, Washington D.C. —. 2005, Empowerment, Washington D.C.

CHAPTER TWO POST NEW PUBLIC MANAGEMENT REFORMS– EXPLORING THE “WHOLE-OF-GOVERNMENT” APPROACH TO PUBLIC REFORM TOM CHRISTENSEN; PER LÆGREID,

Abstract There is a tendency in former trail-blazing NPM countries, like some Anglo-Saxon ones, that they, during the last years have started another wave of reforms that is modifying some central NPM features, without necessarily transforming the public apparatus. These post-NPM reforms are mainly labelled whole-of-government reforms. This paper starts out with exploring and discussing why these reforms are developing, attending to negative effects and implications of NPM, and a broader reason connected to an increasingly insecure and threatening world. This reform approach is then discussed, exploring what is really meant by whole-ofgovernment reforms. The paper then deals with how we theoretically may interpret the whole-of-government reforms, based on structural, cultural and myth perspectives, and discusses the empirical variations of these reform within and between countries. Fourth, we discuss the dynamics of these reforms, particularly focusing on whether this is a consistent and homogeneous reform package, and what type of tensions and conflicts that eventually could be connected to it. We finish by discussing some lessons learned from the post-NPM reform movement.

Introduction In the second generation of modern public-sector reforms–those following two decades of New Public Management reforms–there has been a change of emphasis away from structural devolution,

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disaggregation, and single-purpose organizations and towards a whole-ofgovernment (WOG) approach (Christensen and Lægreid 2006b). This trend is most evident in the Anglo-Saxon countries, such as the United Kingdom, Australia, and New Zealand, once seen as the trailblazers of NPM, but it is also occurring in other countries more reluctant to implement NPM. One pertinent issue is whether this development is really new, since it raises the old question of coordination, and indeed, elements of it have been observable in the UK and Canada for some time. Nevertheless, it would probably be correct to say that the approach has been revitalized and become more comprehensive (Halligan 2005a: 29). Another issue is whether the WOG approach should be seen as breaking with the past, i.e. transforming the main features of NPM, or whether it should instead be construed as re-balancing the NPM system without changing it in any fundamental way (Gregory 2006, Halligan 2006).In this paper we will first outline some of the main arguments for WOG initiatives, which constitute a reaction to negative experiences with NPM reforms such as structural devolution, performance management, and “single-purpose organizations”. Second, we will discuss what the WOG approach is. The spectrum of definition ranges from increased horizontal coordination between different policy areas in the central administrative apparatus to increased intergovernmental vertical coordination between ministries and agencies and coordination of service delivery from below as ways to regulate and enhance performance, effectiveness, and efficiency. Third, we will discuss possible analytical interpretations of the concept of WOG and how this is manifested in empirical variations within and between countries. A structural approach, emphasizing the importance of reorganizing or restructuring, will be contrasted with a cultural perspective, where few structural changes are expected and the focus is instead on value-based coordination or smart practice, characterized by more integrated public entities that work better together. In addition we also look at WOG from a myth-based perspective, which interprets new reform concepts as myths, symbols, or fashions. Fourth, we look at the dynamics and potential effects of WOG. We will conclude the paper by drawing some lessons from the WOG movement. The paper is primarily a conceptual explorative one, but it also draws on a set of new empirical data gathered in Australia and New Zealand by way of example. The database consists of public documents, interviews with key political and managerial executives, and existing scholarly literature on the field. We also use studies and examples from other relevant countries, such as the UK and Canada which have been

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frontrunners in addressing WOG initiatives. In the UK they were introduced under the label “joined-up government,” while in Canada there was a strong emphasis on “horizontalism.” Examples will also be used from Norway, a latecomer to the WOG movement.

Why whole-of-government initiatives? There are many different reasons or motives for the emergence of WOG-a movement driven by both external and internal forces. First, it can be seen as a reaction to the “siloization” or “pillarization” of the public sector that seems to be typical for the NPM reforms (Gregory 2006, Pollitt 2003a). The principle of “single-purpose organizations,” with many specialized and non-overlapping roles and functions, may have produced too much fragmentation, self-centred authorities, and lack of cooperation and coordination, hence hampering effectiveness and efficiency (Boston and Eichbaum 2005: 21, New Zealand Government 2002). Second, structural devolution, which was carried out over a long period of time in many countries and which entailed transferring authority from the central political-administrative level to regulatory agencies, serviceproducing agencies, or state-owned companies, may have produced disadvantages of other kinds (Christensen and Lægreid 2001). The effect has been to deprive the political and administrative leadership of levers of control and of influence and information, raising questions of accountability and capacity. WOG measures, particularly ones involving a reassertion of the centre, reflect the paradox that political executives are more frequently being blamed when things go wrong, even though they actually sought to avoid blame through devolution (Hood 2002, Hood and Rothstein 2001). Not surprisingly, they consider that being criticized and embarrassed politically while at the same time being deprived of influence and information is a bad combination (see Brunsson 1989). Third, for a number of reasons the world is perceived as increasingly insecure and dangerous. The concerns raised by terrorist attacks have had important repercussions for public-sector reforms in the US, the UK, and Australia (Halligan and Adams 2004: 85-86, Kettl 2003), while New Zealand is concerned about bio-security (Gregory 2006). More and more countries are concerned about crises, disasters, and threats, such as natural disasters, like tsunamis, or pandemics, like SARS or bird flu. This has led to a tightening-up of government, or what some Australians refer to as a “thinking up and out” strategy, which includes whole-of-government measures. The new threat of terrorism has underlined the importance of governments’ avoiding contradictory outcomes and ensuring that

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information is shared between agencies (Hammond 2004). Fourth, WOG is seen by some as an efficiency measure and an answer to budgetary pressure, contradictory though that may sound following the introduction of organized fragmentation in the name of efficiency under NPM. A vertical tightening of the system combined with increased horizontal collaboration may now be seen as more efficient than a more fragmented system, with a focus mainly on efficiency in service delivery. The initiative in New Zealand to establish a kind of super-monitoring unit is an example of this view. Adding to this, there has been progress in ICT technology, which reduces the cost of horizontal communication and coordination; the influence of community expectation and consumerism means that citizens want services that better meet their needs; and there has been a shift of intellectual attention away from atomistic models towards a greater emphasis on holistic approaches (Mulgan 2005). It is also important to underline that WOG has a strong political dimension. When “joined-up government” was introduced by the New Labour administration in the UK it was used as a symbol to contrast the new government’s approach with the fragmentizing policies of its predecessors and to demonstrate a response to the fear of “hollowing out” British central government (Pollitt 2003b). Some of the same political arguments can be seen in New Zealand and Australia.

What is “whole-of-government”? In contrast to the NPM reforms, which were dominated by the logic of economics, a second generation of reforms initially labelled “joined-up government” (JUG) and later known as “whole-of-government” was launched. This approach sought to apply a more holistic strategy, using insights from the other social sciences, rather than just economics (Bogdanor 2005). These new reform efforts can in some ways be seen as a combination of path-dependency and negative feedback in the most radical NPM countries such as the UK, New Zealand, and Australia (Perry 6 2005). As a response to the increased fragmentation caused by previous reform programs, these countries adopted coordination and integration strategies. The slogans “joined-up-government” and “whole-ofgovernment” provided new labels for the old doctrine of coordination in the study of public administration (Hood 2005). Adding to the issue of coordination, the problem of integration was a main concern behind these reform initiatives (Mulgan 2005). While the terms are new, they represent old problems. Attempts to coordinate government policy-making and

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service delivery across organizational boundaries are not a new phenomenon (Ling 2002, Richards and Kavanagh 2000). The concept of JUG was first introduced by the Blair government in 1997 and a main aim was to get a better grip on the “wicked” issues straddling the boundaries of public-sector organizations, administrative levels, and policy areas. It became one of the principal themes in the modernization program of Tony Blair’s New Labour administration. JUG was presented as the opposite of “departmentalism,” tunnel vision, and “vertical silos”. JUG denotes the aspiration to achieve horizontal and vertical coordination in order to eliminate situations in which different policies undermine each other, to make better use of scarce resources, to create synergies by bringing together different stakeholders in a particular policy area, and to offer citizens seamless rather than fragmented access to services (Pollitt 2003a). The overlap with the WOG concept is obvious. The Connecting Government Report defines WOG in the Australian Public Service thus: Whole-of-government denotes public services agencies working across portfolio boundaries to achieve a shared goal and an integrated government response to particular issues. Approaches can be formal or informal. They can focus on policy development, program management, and service delivery.

The scope of WOG is pretty broad. One can distinguish between WOG policymaking and WOG implementation, between horizontal linkages and vertical linkages, and the targets for WOG initiatives can be a group, a locality, or a policy sector (see Pollitt 2003a). WOG activities may span any or all levels of government and also involve groups outside government. It is about joining up at the top, but also about joining up at the base, enhancing local level integration and it is involving publicprivate partnerships. The WOG concept does not represent a coherent set of ideas and tools but can best be seen as an umbrella term describing a group of responses to the problem of increased fragmentation of the public sector and public services and a wish to increase coordination (see Ling 2002).

WOG–analytical interpretations and empirical manifestations There are various frameworks in the literature that can be used to classify the WOG approach and that contribute to the development of a theory about what a WOG approach is (Ling 2002, Lindquist 2002,

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Stewart 2002). We will examine the WOG approach from a structural, a cultural, and a myth-based perspective (Christensen and Lægreid 2001). From a structural or instrumental perspective the WOG approach may generally be seen as conscious organizational design or reorganization (see Egeberg 2003). The perspective is based on the assumption that political and administrative leaders use the structural design of public entities as instruments to fulfil public goals, which in the case of WOG means getting government organizations to work better together. Major preconditions for this are that the leaders have a relatively large degree of control over change or reform processes and that they score high on rational calculation, meaning that their organizational or means-end thinking is generally not ambiguous (Dahl and Lindblom 1953), i.e. they know how to organize for WOG. There are two major versions of the instrumental perspective: a hierarchical one and a negotiational one (Allison 1971, March and Olsen 1983). According to the hierarchical version, the political and administrative leadership is homogeneous and in agreement about the design and redesign of public organizations. So what WOG measures would the hierarchical version of the instrumental perspective expect to be implemented? The challenge is to develop supportive structures for shared frameworks. One option is to adopt a rather aggressive top-down style in implementing WOG initiatives, which was what the Blair government did in the UK (Stoker 2005). Another option is a strengthening or reassertion of the centre. This could have both a vertical and a horizontal dimension, whereby the vertical one would entail controlling more subordinate bodies, while the horizontal one would be concerned with getting the different central ministries and specialized agencies to work better together, both potential instruments in a WOG approach. The UK has been a leader in strengthening the role of central government, establishing structures such as strategic units, reviews, and public service agreements. Labour’s first move towards JUG was the creation of the Social Exclusion Unit in 1997 and the Strategic Communication Unit one year later (Kavanagh and Richards 2001). Both the UK and New Zealand have a clear hierarchical component in their style of “joining-up” (Perry 6 2005). One interesting paradox in the UK is that the Labour government has tried to improve service delivery by enhancing its central controlling mechanisms while at the same time continuing to argue for more autonomy for the officials charged with delivering services (Richards and Smith 2006). The hierarchical strengthening of the centre might imply a stronger PM’s office, in both a political and an administrative respect, as seen in

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the UK, Australia, and New Zealand. It might also imply tightening up financial management and strengthening governance and accountability regimes, as is the case in Canada (Aucoin 2006). Likewise, the integration achieved through centrelink1 in Australia can be seen as a reaction to previous reforms and as implying a stronger hierarchy. This runs counter to those features of NPM that attend to devolution and autonomy but might be more in line with strengthening the strategic approach. Measures like this are, however, primarily concerned with strengthening central political capacity or capability, potentially making subordinate agencies and companies less autonomous. Even though the PM’s Office in Australia has been strengthened (Halligan and Adams 2004: 86) and the specialized agencies brought back under greater central control as prescribed by the Uhrig report (Bartos 2005, Halligan 2006), there has not been much major restructuring going on. Another example of a hierarchical measure is the establishment by the PM/Cabinet of new organizational units, such as new cabinet/ministerial committees, inter-ministerial/inter-departmental or inter-agency collaborative units, inter-governmental councils, lead agency approach (indigenous people in Australia), circuit-breaker teams, super networks, task forces, cross-sectoral programs (increased ICT compatibility, for example, see Halligan 2004: 12) or projects, tsars, etc. with the main purpose of getting government units to work better together (Gregory 2003 and 2006, Halligan and Adams 2004). In 2003, a new Cabinet Implementation Unit was established in the PM&C in Australia to support WOG activities. Although the central political-administrative leadership need not necessarily be directly involved, the task is to hierarchically design a system that increases the probability of collaborative or coordinated government. Of particular importance is the emphasis placed by WOG on areas that cut across traditional boundaries. Under the label of horizontal management, the Canadian government launched such initiatives from the mid-1990s on in areas such as innovation, poverty, and climate change (Bakvis and Juillet 2004). Other examples of this were seen in Australia in 2002, where attempts were made to bring more coordination to such areas as national security, counter-terrorism, demographics, science, education, sustainable environment, energy, rural and regional development, transportation, and work and family life (Halligan and Adams 2004: 871

Centrelink is a statutory authority established in 1997. Based on the idea of the integrated local service point Centrelink was founded to incorporate most of the federal government’s benefits distribution in one organization offering a wide range of services from several departments.

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88). Creating coordinative structures inside existing central structures, increasing the strategic leadership role of the Cabinet, and focusing more on following up central decisions are typical hierarchical efforts in Australia (Halligan 2006). Another version of this could be when coordinative efforts are left with single ministries or departments, particularly the broader ones. Both these measures take it for granted that the hierarchical leadership must put pressure on the sectoral authorities to get them to collaborate and coordinate better. Procedural efforts have also been made to enhance WOG initiatives. In New Zealand there is a stronger emphasis on effectiveness, broader longterm “ownership” interests and greater outcome focus in contrast to the more short-term and narrower “purchaser” efficiency and output focus that characterized the first generation of reforms (New Zealand Government 2002, Boston and Eichbaum 2005). The negotiation version of the instrumental perspective is based on heterogeneity, rather than on homogeneity, and on the notion that different actors are on the same hierarchical level and are equal players. The public apparatus is internally heterogeneous, with different units having different structures, roles, functions, and interests (March and Olsen 1983). There is also heterogeneity in relation to major stakeholders in the environment, including private actors. The WOG approach will necessarily have negotiative features, whether inside the cabinet, between ministries and departments involved in inter-sectoral task forces, programs or projects, or specialized agencies involved in collaborative service delivery, like in WOG reforms in New Zealand. Such negotiations could involve restructuring of portfolios or policy areas, for example through mergers aimed at bringing together several bodies and functions inside one new unit in order to strengthen collaboration and coordination. Alternatively, since cooperative structures are more the result of collegial coordination than hierarchical pressure, this goal could also be attained via looser but systematic collaborative efforts. WOG seems generally to be more about working pragmatically together than about formalized collaboration. This has especially been the case in Canada where working horizontally has been an issue of ongoing importance since the mid-1990s (Bakvis and Juliett 2004). Management of horizontal issues and initiatives has been promoted by choosing different horizontal projects followed by “lessons learned” and “how-to” guides on managing collaborative arrangements. One lesson is that departments working horizontally in the same policy area may well engage in competition and rivalry rather than cooperation (Bakvis and Juillet 2004). Some collaborative efforts, as seen in Australia, are focused more on

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coordination from below, for example through one-stop shops aimed at delivering seamless service. This can be seen both as control from above (in this case by Centrelink), but also as a real local collaborative effort requiring autonomy from central control. A comparative study of service delivery organizations in the UK, New Zealand, Australia, and the Netherlands concludes that procedural bureaucratic models are being superseded by network governance to cater for the WOG approach (Considine and Lewis 2003). A cultural-institutional perspective sees the development of public organizations more as evolution than “revolution” and design (Selznick 1957). This process is characterized by a mutual adaptation to internal and external pressure, whereby every public organization eventually develops unique institutional or informal norms and values. The importance of pathdependency and historical trajectories and traditions is evident in public institutions (Krasner 1988). Institutional leadership is supposed to help the transformation from organization to institution, or as March and Olsen (1989) put it, from aggregative to integrative features. Improving the adaptivity and flexibility of the civil service on the one hand and the sense of collectivity, shared values, and mutual trust among civil servants (OECD 2005) on the other hand involves a difficult trade-off between individualization and delegation. Balancing fragmentation and integration, individualization and common identity, and market pressure and cultural cohesion is a big challenge in public-sector reforms (Lægreid and Wise 2006). When public organizations are exposed to reform processes, the reforms proposed must, according to a cultural perspective, go through a cultural compatibility test (Brunsson and Olsen 1993). Several features of the WOG approach can be understood using a cultural perspective. While structure receives significant attention, even more emphasis is given to the importance of cultural change for successful WOG systems. A central message is that structure is not enough to fulfil the goals of whole-of-government initiatives. Cultural change is also necessary, and processes and attitudes need to be addressed (Centre for Management and Policy Studies 2000). An overall feature is that the second wave of reforms is relatively less preoccupied with structural changes and more characterized by evolutionary change resulting from conscious policy choices (Boston and Eichbaum 2005: 19-20). Compared with the first one, the post-NPM reforms focus more on building a strong and unified sense of values, teambuilding, the involvement of participating organizations, trust, value-based management, collaboration, and improving the training and selfdevelopment of public servants (New Zealand Government 2002, Ling

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2002, Lindquist 2002). There is a need to re-establish a “common ethic” and a “cohesive culture” in the public sector because of reported corrosion of loyalty and increasing mistrust (Norman 1995). What governments are seeking is a cultural shift in the state sector, and the argument is that there is much to be achieved by trying to build a common culture, collegiality, and shared understanding of norms and values, all of which are considered preconditions for working better across structural divisions. Or in the words of Peter Shergold (2004: 4), the Secretary at PM & C in Australia: “It affirms a commitment to join bureaucracy together, eschew departmentalism and embrace seamlessness.” He also stresses that “all agencies should be bound together by a single, distinctive ethos of public service” (p. 5). The report of the Australian Management Advisory Committee, Connecting Government: Whole of Government Responses to Australia’s Priority Challenges (2004), underlined the need to build a supportive Australian public-sector culture that encourages whole-ofgovernment solutions by formulating value guidelines and codes of conduct, where the slogan is “working together.” Leadership is considered critical for successful WOG initiatives. There has been increased activity in the form of leadership development programs and mentoring to develop shared leadership skills (OECD 2001). Australia has launched an integrated leadership strategy (Podger 2004) and the concept of “craftsmanship” in leadership, focusing on collaboration, has been developed (Bardach 1998). In Australia there is a focus on connecting government through common cultural attitudes. Consulting other agencies may be seen as a cultural strategy in a joined-up government mode. One measure where the leadership plays an important role is good practice guidance and standard setting. There is also more talk about developing a value-based system, of which collectivity is an increasingly important element. In addition, working cooperatively across structures is also about performance culture and innovative solutions (Shergold 2004). Another cultural aspect is the increasing setting of standards that are supposed to influence professional practice in the public apparatus (see Ahrne and Brunsson 2004). The most typical cultural one is ethical standards, but there is also a growing use of standards in many other fields. In the Review of the Centre report (2002) in New Zealand this was formulated in the following way: “strengthening core public service capability, notably through a whole-of-government human resource framework based on good practice and policies, and broadening the State Service Commissioner’s mandate to lead on values and standards.” In the State Sector Amendment Act from 2004 the Commissioner was given a

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wider mandate to build capacity and to provide stronger leadership in setting and implementing standards across sectors and services (Gregory 2006). This could, of course, also be interpreted in terms of an instrumental perspective, not only a cultural one. A myth perspective sees reforms and their main concepts mainly in terms of myths, symbols, and fashions (Christensen and Lægreid 2003). Accordingly, reforms are also about the promotion of reform symbols and fashions, so that central actors, citizens, and the media come to take it for granted that certain reforms and reform concepts are unavoidable and will enhance effectiveness and efficiency in the public sector. These reform concepts often imitate practices in the private sector and are “sold” by private consulting firms and international reform entrepreneurs, like the OECD, primarily in order to increase the legitimacy of the politicaladministrative system and its leaders rather than to solve particular instrumental problems (Sahlin-Andersson 2001). “Window-dressing” is important, and pretending to act in a successful way while also gaining support by actually acting instrumentally is often beneficial for leaders (Brunsson 1989). In such a perspective WOG is primarily a buzzword. In a general way, it is not difficult to imagine that a WOG approach would have myth aspects. It is a slogan that readily brings to mind the idea of repairing and putting back together something that is broken, has fallen apart or become fragmented. In this sense its benefits are taken for granted and very few actors would dispute the advantages of an integrated governmental apparatus or of taking anything other than a wide and collaborative view. What are some of the more specific examples of this concept as a myth? A rather cynical view of the whole-of-government approach in Australia would be that it is a fashion and that it suits political and most especially administrative leaders to be seen to be thinking big ideas. These actors think highly of themselves, have high salaries, and would like to make their mark on government and society. This reform concept fits well into that mission. One may ask, however, whether Australia really has such major coordination problems, compared to New Zealand, for example. If one doubts whether this is the case, then this concept would attain the status of a myth. Another aspect of the reforms in Australia that could be understood from a myth perspective is the concept of “valuebased government,” which seems to have been imported and spread as a fad, but has now become more formalized-in the sense of being written and codified-than earlier. A third Australian reform initiative that is fundamentally rhetorical in its claims is the accrual output-based budgeting system (Carlin and Guthrie 2003).

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Gregory (2006) sees the second-generation reforms in New Zealand and the WOG approach to some extent as rhetoric. There is a gap between talk and action that may be attributed to a certain weariness with structural reforms, to the fact that the civil service has taken NPM on board and adapted to it, and to a general move to the right politically. As a result, he sees the second generation of reforms as “treating the effects rather than the cause.” He also sees these symbolic features as a precondition for a more pragmatic approach to the second generation of reforms. Furthermore, public-private partnership is a new fashionable concept that has become a dominant slogan in the discourse about whole-ofgovernment initiatives and has a strong rhetorical flavour (Wettenhall 2003).

The dynamics and potential effects of whole-of-government measures One central question to ask is how well the different WOG measures fit together. Are they compatible or are there typical tensions and conflicts? May we see them as parts of a conscious overall strategy or as more independent and loosely coupled? If we first look at some of the structural or instrumental features and the relationship between the vertical and horizontal dimensions of the WOG measures, these dimensions may at first sight appear to be coordinated. Potentially, however, tension may arise between horizontal collaboration and the task of ensuring vertical accountability. Political leaders may wish to combine a strengthening of the centre with increased horizontal coordination, and would use structural instruments, like collegial structures on different levels, to achieve that. Seen from this angle horizontal coordination is not based primarily on lower levels and on a voluntary component, but rather is part of a hierarchically defined coordination strategy that uses a combination of vertical and horizontal instruments. Administrative leaders may help political executives to achieve a more hands-on collaborative take on service delivery. Overall, combining vertical and horizontal instruments may amount to trying to modify two typical NPM features at the same time, namely devolution and fragmentation. Halligan (2005b) stresses that the second generation of reforms in Australia combines horizontal coordination and recentralization: The whole-of-government agenda also had a centralising element in that central agencies were driving policy directions or principles, either

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But this double strategy may be difficult to implement in practice, for a number of reasons. For example, neither Australia nor New Zealand has made a clean break with the NPM system, but instead they are trying to combine it with WOG features. Such a multi-layered and complex system may create many tensions and conflicts. Australia has tried to keep some of the basic features of devolving responsibility to specialized agencies, while at the same time modifying these features with WOG initiatives. This may lead agencies to resist both the reassertion of the centre and horizontal coordination. They may think that the incentives for adapting to the new measures are few and that they have too little in common with the other units they are expected to coordinate with. Specialized, rather independent agencies may generally be difficult to control and coordinate. Wettenhall (2005: 89-91) sees a clear conflict between the WOG agenda as a broad reform instrument and the establishment of autonomy for a whole range of non-departmental public bodies. As we have indicated, reassertion of the centre may be seen as part of a WOG strategy. One reason for this is that a stronger centre may be seen as a precondition for making the public apparatus work better together, both in a vertical and in a horizontal way. Vertically because the central capacity for control, planning and acting increases, as do the instruments for vertical coordination. Horizontally, because there is more capacity to establish and control cross-sectoral units and collaborative efforts and more capacity to scrutinize specialized agencies. Increased capacity at the centre also means that it is easier to handle and balance different considerations brought to the attention of the central politicaladministrative leadership. But strengthening the centre may also create tensions and conflicts. One such tension might arise from the challenge of balancing reassertion and devolution. How easy is it to strengthen the centre and at the same time underscore that agencies and other subordinate bodies continue to enjoy a lot of autonomy? Will this create tension and confusion in role enactment and make subordinate bodies feel more insecure? And how will reassertion of the centre influence intergovernmental relations? Will regional and local levels see this as increased hierarchical coordination and as strengthening their ability to implement policies and programs, or will they react negatively because they see it as undermining their authority and influence? Efforts at better coordination vertically towards indigenous people in Australia could be an example. A third aspect is how reassertion

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of the centre should be brought about. Reorganizations like strengthening political resources rather than administrative ones, or strengthening the PM’s office instead of other central ministries, departments or agencies, could generate conflicts. The strengthening of the Prime Minister’s Office in Australia involving the appointment of more party political than administrative personnel may be construed as relieving the burden on administrative staff, but it may also potentially create tensions. Increased horizontal coordination, as part of a WOG strategy, can, as mentioned, take many different forms. Seen from an instrumental perspective, there might be differences in how strongly the formalized collaborative efforts are. Establishing superior coordination bodies, either permanent or ad hoc, may have stronger effects on real coordination than softer efforts, but may also be seen as undesirable and threatening by units that stand to lose status and position through such efforts. Horizontal coordinative efforts might make decision-making and service delivery too complex, particularly when sect oral organizations also have to attend to cross-sectoral bodies, raising accountability problems. Efforts at horizontal collaboration might also be too broadly based. In other words, coordination may entail mixing together specialized sect oral considerations with those that overlap with others, when the former should really be kept separate. An example of this is the merger of three sect oral public organizations in Norway–the unemployment service, the national pension and insurance system, and the social services. The collaborative aim here is to avoid having clients pushed around between different sect oral authorities by creating one new organization and one local office to which clients can turn. However, since only about 15% of all clients need to have dealings with two or more of the sect oral organizations, the large and complex new organization is probably far too broad, because it includes components that have no relationship with each other and no common clients. If we combine the instrumental and cultural perspectives, the crucial question raised by the WOG approach would be how to balance restructuring and cultural collaborative efforts, or how to combine them. Restructuring efforts may in some ways be necessary to strengthen the political and administrative leadership and its efforts at coordination and collaboration, but knowledge about the effects of these measures may be lacking, and cultural traditions inside sect oral or other specialized public organizations may result in cultural resistance to change, thus undermining the structural changes. Furthermore, professional groups may react negatively to restructuring, because they may fear that their culture, norms, and values will be weakened, and, what is more, that their

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influence may decrease in the new structure. Looked at from a cultural angle, collaborative efforts aimed at developing common and collaborative cultures may seek to play down the importance of structural instruments, like, for example, the Australian practice of increasingly using value-based management and collaboration instead of contracts specifying in detail what different agencies should do. But cultural measures may also come up against implementation problems because of structural barriers. Formal structural constraints may be relatively stronger than cultural factors, so that collaborative efforts and so-called smart practice fall short of a more holistic perspective in practice. An example of a rather ambitious WOG strategy is the broad one used by the Ministry of Social Development in New Zealand, which combines structural and cultural features. Structural measures have been introduced to reassert the centre and bring policy development and service delivery back together again, with less fragmentation between organizational units, and to “stay structured around core businesses.” There has been a shift from a policy-specialized organization to a more multi-functional organization, and an outcome focus has been combined with an organic paradigm, whereby collaboration between internal organizational units and sectors is to be achieved through leadership efforts and teams. The collaborative efforts are being applied on the central level, among specialized agencies, and with private employers, with the aim of delivering coordinated and balanced services to different client groups. The increased vertical specialization of the NPM reforms has in the second generation of reforms been countered by various measures representing a reassertion of the centre or re-regulation (Christensen and Lægreid 2006a). A reassertion of the centre is most characteristic in the trail-blazing NPM countries New Zealand, Australia, and the UK. Coordination and coherence are being sought in public policy, and a more strategic government is being presented as a response to decentralization (Peters 2005). This development is partly due to concerns over the fragmentation, undermining of political control, and coordination and capacity problems that emerged from the first generation of NPM reforms (see Christensen and Lægreid 2001). It includes the strengthening of central political and administrative capacity, the establishment of more scrutiny instruments and regulatory agencies, subjecting agencies to more control, etc. The former increase in horizontal specialization, which attended to non-overlapping roles and tasks, is now increasingly being countered by inter-sectoral programs and projects, and by networks and collaboration across institutions and functions that may increase the

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overall coordination of the system. A WOG approach is now deemed more appropriate than praising specialization and unambiguous roles, reflecting a reaction to the “siloization” or “pillarization” of the public sector that was typical of NPM. What we are seeing is a rebalancing or adjustment of the basic NPM model in a more centralized direction without any fundamental change.

Conclusion The whole-of-government approach has raised critical issues about public-sector performance. There is a tension between WOG initiatives and performance management systems (Pollitt 2003b). Performance management has encouraged individuals as well as organizations to meet their own performance targets and there has been a tendency towards some fragmentation of organizational forms. In contrast WOG aims to promote cooperation, networks, and collaboration between organizations. Unless crosscutting targets get equal status as organization-specific targets, WOG initiatives will have difficulty becoming a major tool. JUG and WOG approaches have a strong positive flavour and are generally seen as a good thing. But it is also important to stress that the “silo mentalities” that these reform initiatives are supposed to attack exist for good reasons (Page 2005). Well-defined vertical and horizontal organizational boundaries should not only be seen as a symptom of obsolescent thinking (Pollitt 2003b). The division of labour and specialization is an inevitable feature of modern organizations, implying that JUG and WOG initiatives will be difficult to implement. Working horizontally is a very time- and resource-consuming activity (Bakvis and Juillet 2004). The WOG approach also raises other difficulties, such as unintended risks, ambitious agendas, and uncontrolled consequences (Perry 6 et al. 2002). Accountability and risk management is a central concern and a key question is how one can have WOG joint action, common standards and shared systems, on the one hand, and vertical accountability for individual agency performance on the other (Management Advisory Committee 2004). WOG tends not to clarify lines of accountability. The challenge is to balance better vertical accountability, horizontal accountability, and responsiveness downwards (Ryan and Walsh 2004). One view is that the new set of reforms represented by WOG initiatives is partly a reaction to problems of control and accountability generated by the first generation of NPM reforms and that the new balance of control and autonomy opens up new accountability issues (Christensen and Lægreid 2001). Another view

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is that accountability was actually already a problem in the old, more trustbased public administration systems and that NPM brought more unambiguous and transparent accountability instruments. According to this perspective, the second generation of reforms is simply fine-tuning or rebalancing this system (Halligan 2006, Gregory 2006). One lesson is that if one wants to encourage more collaborative working practices, one size does not fit all (Page 2005). It is not a panacea that will solve all problems everywhere and at all times. WOG is a selective project that is not appropriate in all circumstances or suitable for all public-sector activities (Pollitt 2003a). A critical Canadian study of horizontal management recommended that horizontal arrangements should be entered into only after careful thought and an estimate of the costs involved (Bakvis and Juillet 2004). We have also revealed that countries have different approaches to a greater WOG orientation. There are contradictory forces pulling in different directions when it comes to adopting a WOG approach (Peters 1998, Management Advisory Committee 2004). On the one hand NPM reforms have pushed central government to decentralize decision-making. On the other hand, the centre has been encouraged to strengthen its capacity to coordinate policy development and implementation. Several competing strategies have been advocated and implemented to enhance WOG systems, implying that the reform content has been more fluid and contested than might be inferred from the use of this rather homogeneous term (Ling 2002). Another lesson is that high-level politics and changes in central government organizations are not necessarily the most important reform tool for promoting “whole-of-government” initiatives. WOG is to a great extent about lower-level politics and getting people on the ground in municipalities, regions, local government organizations, civil society organizations, and market-based organizations to work together. WOG needs cooperative effort and cannot easily be imposed from the top down (Pollitt 2003b). A third lesson is that building a WOG system is a long-term project that takes time to implement. New skills, changes in organizational culture, and building mutual trust relations need patience. The role of a successful reform agent is to operate more as a gardener than as an engineer or an architect (see March and Olsen 1983). It is also important to underline that WOG initiatives are far from being only a question of neutral administrative techniques. Accountability, legitimacy, power relations, and trust in government organizations are fundamentally political issues (Perry 6 2005). Even if governments set

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budgets, programs, and objectives that cross organizational boundaries, WOG activities might still be limited unless there are fundamental changes in accountability systems, dominant cultures, and structural arrangements. The question is whether WOG will continue to be a strong reform movement or whether it will gradually fade away and be supplemented or replaced by new reform initiatives (Page 2005, Stoker 2005). Seen from a symbolic or myth perspective this might easily be the case. In the 10-year period 1997-2006 we have seen a shift from “joined-up-government” to the “whole of-government” concept. In the UK “joined-up” government is no longer so much in vogue and since the 2001 election it has been overshadowed by other reform concepts such as modernization, quality services, delivery, and multi-level-government.

References Ahrne, G. and N. Brunsson. (2004). “Soft regulation from an organizational perspective.” In U. Mörth (ed.), Soft law in governance and regulation. Cheltenham: Edward Elgar. Allison, G. T. (1971). Essence of Decisions. Boston: Little Brown. Aucoin, P. (2006). “Accountability and coordination with independent foundations: A Canadian case of autonomization.” In T. Christensen and P. Lægreid (eds.) Autonomy and Regulation. Coping with agencies in the modern state. Cheltenham: Edward Elgar. Bakvis, H. and L. Juillet. (2004). The Horizontal Challenge: Line Departments, Central Agencies and Leadership. Ottawa: Canada School of Public Services. Bardach, E. (1998). Getting agencies to work together: the practice and theory of managerial craftsmanship. Washington DC: Brookings. Bartos, S. (2005). “The Uhrig Report: Damp Squib or Ticking Timebomb?” Australia Journal of Public Administration, 64 (1): 9599. Bogdanor, V. (2005). “Introduction”. In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional Paper 5. Oxford: Oxford University Press. Boston, J. and C. Eichbaum (2005). “State Sector Reform and Renewal in New Zealand: Lessons for Governance.” Paper presented at the Conference on “Repositioning of Public Governance–Global Experiences and Challenges,” Taipei, 18-19 November. Brunsson, N. (1989). The Organization of Hypocrisy. Talk, Decisions and Actions in Organizations. Chichester: Wiley.

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Brunsson, N. and J.P. Olsen (1993). The reforming organization. London: Routledge. Carlin, T.M. and J. Guthrie (2003). “Accrual output based budgeting systems in Australia.” Public Management Review, 5 (2): 145-162. Centre for Management and Policy Studies (2000). “Joined-Up Solutions to Policy development” (http://cmps.gov.uk/whatson/cdt/sem.) Christensen, T. and P. Lægreid, eds. (2001). New Public Management. The Transformation of Ideas and Practice. Aldershot: Ashgate. —. (2003). “Administrative Reform Policy: The Challenge of Turning Symbols into Practice”. Public Organization Review, 3 (1): 3-27. —. (2006a). “Agencification and regulatory reform.” In T. Christensen and P. Lægreid (eds.), Autonomy and Regulation. Coping with agencies in the modern state. Cheltenham: Edward Elgar. —. (2006b). “Rebalancing the State: Reregulation and the Reassertion of the Centre.” In T. Christensen and P. Lægreid (eds.), Autonomy and Regulation. Coping with agencies in the modern state. Cheltenham: Edward Elgar. Considine, M. and J. Lewis (2003). “Bureaucracy, network or enterprise? Comparing models of governance in Australia, Britain, the Netherlands and New Zealand.” Public Administration Review, 63 (2): 131-140. Dahl, R.A. and C.E. Lindblom (1953). Politics, Economics, and Welfare. New York: Harper & Row. Egeberg, M. (2003). “How bureaucratic structure matters: An Organizational Perspective,”In B.G. Peters and J. Pierre (eds.), Handbook of Public Administration. London: Sage. Gregory, R. (2003). “All the King’s Horses and all the King’s Men: Putting New Zealand’s Public Sector Back Together Again.” International Public Management Review, 4 (2), 41–58. —. (2006). “Theoretical Faith and Practical Works: De-Autonomizing and Joining-Up in the New Zealand State Sector.” In T. Christensen and P. Lægreid (eds.), Autonomy and regulation: Coping with agencies in the modern state. London: Edward Elgar. Halligan, J. (2004). ‘Regeneration in an International Context’, Australian Journal of Public Administration, 64 (2): 10-12. —. (2005a). “Public Management and Departments: Contemporary Themes – Future Agendas.” Australia Journal of Public Administration, 84 (1): 1-15. —. (2005b). “Public Sector Reform.” In C. Aulich and R. Wettenhall (eds.), Howard’s Second and Third Governments. Sydney: University of New South Wales Press. —. (2006). “The Reassertion of the Centre in a First Generation NPM

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System.” In T. Christensen and P. Lægreid (eds.), Autonomy and regulation: Coping with agencies in the modern state. Cheltenham: Edward Elgar. Halligan, J. and J. Adams (2004). “Security, capacity and post-market reforms: Public management change in 2003.” Australia Journal of Public Administration, 63(1): 85-93. Hammond, T. (2004). “Why is the intelligence community so different (difficult?) to redesign?” Paper presented at the SOG-conference, University of British Colombia, Vancouver, June 15-17. Hood, C. (2002). “The Risk Game and the Blame Game.” Government and Opposition, 37 (1): 15-37. —. (2005). “The Idea of Joined-Up Government: A Historical Perspective.” In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional paper 5. Oxford: Oxford University Press. Hood, C. and H. Rothstein (2001). “Risk Regulation under Pressure. Problem Solving or Blame Shifting?” Administration and Society, vol. 33 (1, March): 21-53. Kavanagh, D. and D. Richards (2001). “Departementalism and Joined-Up Government: Back to the Future?” Parliamentary Affairs, 54: 1-18. Kettl, D.F. (2003). “Contingent Coordination: Practical and Theoretical Puzzles for Homeland Security.” American Review for Public Administration, 33 (September): 253-277. Krasner, S. (1988), ‘Sovereignty: An Institutional Perspective.” Comparative Political Studies, 21: 66–94. Lindquist, E.A. (2002). “Culture, control or capacity? Meeting contemporary horizontal challenges in public service management.” In M. Edwards and J. Langford (eds), New players, partners and processes: a public sector without boundaries? National Institute for Governance, University of Canberra and Centre for Public Sector Studies, University of Victoria (Canada). Ling, T. (2002). “Delivering joined up government in the UK: dimensions, issues and problems.” Public Administration, 80 (4): 615-642. Lægreid, P. and L. Wise (2006). “Reforming Human Resource Management in Civil Service Systems.” In F. van der Meer, T. Thoonen and J. Raadschelders (eds.), Comparative Civil Service Systems in the 21st Century. London: Palgrave (forthcoming). Management Advisory Committee (2004). Connecting Government. Whole of Government Responses to Australia’s Priority Challenges. Commonwealth of Australia. http://www. dcita.gov.au/cca. March, J.G. and J.P. Olsen (1983). “Organizing Political Life: What Administrative Reorganization Tells Us About Governance.”

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American Political Science Review, 77 (2): 281-296. —. (1989). Rediscovering Institutions. New York: Free Press. Mulgan, G. (2005). “Joined-Up Government: Past, Present, and Future.” In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional paper 5. Oxford: Oxford University Press. New Zealand Government (2002). Report of the advisory group on the review of the centre. Presented to the ministers of State Services and Finance, http://www.ssc.govt.nz/roc. Norman, R. (1995). “New Zealand’s Reinvented Government: Experiences of Public Managers.” Public sector, 18 (2). OECD (2001). Public sector leadership for the 21st century. Paris: OECD. —. (2005). Modernising Government. The Way Forward. Paris: OECD. Page, E. (2005). “Joined-Up Government and the Civil Service.” In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional paper 5. Oxford: Oxford University Press. Perry 6 et al. (2002). Towards holistic governance: the new reform agenda. Government beyond the Centre Series. Basingstoke: Palgrave. Perry 6 (2005). “Joined-Up Government in the West beyond Britain: A Provisional Assessment.” In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional paper 5. Oxford: Oxford University Press. Peters, B.G. (1998). “Managing horizontal government: the politics of coordination.” Public Administration, 76 (2): 295-311. —. (2005). “The Search for Coordination and Coherence in Public Policy: Return to the centre?” Unpublished paper. Department of Political Science, University of Pittsburgh. Podger, A.S. (2004). “Innovation with integrity–the public sector leadership imperative to 2020.” Australian Journal of Public Administration, 63 (1): 11-21. Pollitt, C. (2003a). “Joined-up Government: a Survey” Political Studies Review, 1: 34-49. —. (2003b). The Essential Public Manager. Maidenhead: Open University. Richards, D. and D. Kavangh (2000). “Can joined up government be a reality? A Case Study of British Labour government 1997-2000.” Paper presented to the Australian Political Studies Association 2000 Conference, 4-6 October. Richards, D. and M. Smith (2006). “The Tension of Political Control and Administrative Autonomy: from NPM to a Reconstituted Westminster Model.” In T. Christensen and P. Lægreid (eds.), Autonomy and Regulation. Coping with agencies in the modern state. Cheltenham:

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Edward Elgar. Ryan, C. and P. Walsh (2004). “Collaboration of public sector agencies: reporting and accountability challenges.” International Journal of Public Sector Management, 17 (7): 621-631. Sahlin-Andersson, K. (2001). “National, international and transnational construction of New Public Manegement.” In T. Christensen and P. Lægreid (eds.), New Public Managenent. The transformation of ideas and practice. Aldershot: Ashgate. Selznick, P. (1957). Leadership in administration. New York: Harper & Row. Shergold, P. (2004). “Regeneration: New Structures, New Leaders, New Traditions.” Australian Journal of Public Administration, 54 (2): 3-6. Stewart, J. (2002). “Horizontal coordination–how far have we gone and how far can we go?” In M. Edwards and J. Langford (eds.), New players, partners and processes: a public sector without boundaries? National Institute for Governance, University of Canberra and Centre for Public Sector Studies, University of Victoria (Canada). Stoker, G. (2005). “Joined-Up Government for Local and regional Institutions.” In V. Bogdanor (ed.), Joined-Up Government. British Academy Occasional paper 5. Oxford: Oxford University Press. Wettenhall, R. (2003). “The Rhetoric and Reality of Public-Private Partnerships.” Public Organization Review: A Global Journal, 3:77107. —. (2005). “Non-departmental Public Bodies.” In C. Aulich and R. Wettenhall (eds.), Howard’s Second and Third Governments. Sydney: University of New South Wales Press.

CHAPTER THREE PUBLIC SECTOR REFORM IN JAMAICA PHILIP D. OSEI

Since Jamaica’s independence from British rule in 1962 and the adoption of the Westminster–Whitehall model of government, the country has made several attempts at reforming its administrative systems. Of recent pedigree in this reformist movement has been the Administrative Reform Programme (Phase 1) which took place between 1984 and 1995, and the Public Sector Modernization Programme (Phase 2) which began in 1996 and is still ongoing. These recent reform programmes were influenced, in a most profound way, by New Public Management (NPM) approaches to public sector reform. Most of these reform efforts were informed by studies carried out by various commissions of enquiry led by eminent academicians (Mills 1974; Hamilton 1990; Nettleford 1992), private sector executives (Orane Committee 1999) and public administration practitioners (Coore-Johnson 2002; Sadie Keating Report 2004) usually from the region, consultants both local and foreign (KPMG 1996; 2000a, b, & c) and through internal self-drive by individual ministries and departments. These included the Nettleford Committee Report on Government Structure (1992), the Stone Report on the Performance, Accountability and Responsibilities of Elected Parliamentarians (1990), the Report of the UNDP Management Development Programme Mission to Jamaica (June 23 to July 5, 1991), “The Management of Change” by Michael Manley, Reports of the Statutory Boards Committee 1973, the Competition Act 1992, laws and financial statements of several statutory boards and government companies, and the Federal Constitution of the Swiss Confederation (Nettleford Report 1992:27). The findings of these various investigations and the experiences of innovating countries that have previously undertaken similar programmes of public sector reform have assisted the Jamaican reform process in many ways. Lesson drawing and borrowing of

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institutions for local adaptation are very much in sync with the policy making culture of Jamaica. In seeking to achieve a strengthened and more accountable public management, the Government of Jamaica has pursued three main programmes to date. It pursued a structural adjustment-related administrative reform 1984-1994, a public sector modernisation programme 1996-2002 and a continuation public sector modernisation programme 2002 to the present. The continuation programme is a broader development strategy that aims at policy reform for sustainable development, improved governance and renewal of governmental structures in tune with and following up on the reform achieved between 1996 and 2002. This chapter is essentially an attempt at a general overview of these developments.

Antecedents to the Reform Table 1 below gives a detailed picture of the dynamics of the Jamaican economy since independence in 1962. It shows that at independence the economy was poised for growth and it held considerable potential for national development. The public sector saw considerable modernisation and growth from the 1960s to the early 1970s. By 1977 the economy needed help and a Standby Agreement was signed with the International Monetary Fund (IMF) with the objective of addressing balance of payments problems. Table 1 shows that, from independence to 1996, the balance of payments current account has been limping, which is partly a reflection of the very thin natural resource base of the economy. There was positive growth for the decade of 1962 to 1972. The next decade 1974 to 1984 largely experienced negative growth, thus dwindling opportunities for continuous public sector growth. In response to the difficult economic circumstances, Jamaica implemented two structural adjustment programmes between 1980 and 1988. These programmes were supported by the IMF and the World Bank. The Jamaican dollar underwent devaluation from J$5.5 in 1985 to J$33 to the US dollar as part of the package of restructuring. The reform included a concomitant downsizing of the civil service from 130,400 in 1974 to 103,800 in 1985 and a subsequent reduction of 8,000 government employees in 1992 (NewmanWilliams and Sabatini 1997: 62). The growth rate from 1997 to 2000 remained negative until a semblance of positive growth returned in 2002. On the whole, the economic record has shown considerable volatility-a well-documented economic feature of small island developing states (SIDS), of which Jamaica is a part.

Chapter Three

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Table 1: Selected Economic Indicators showing the strength of the Jamaican economy, 1962-1996 Year

Real GDP Growth %

BOP Current Account US$m

Inflation %

1962

2.0

-8.4

1.4

1964

8.6

-43.7

2.0

1966

3.9

-42.0

1.9

1968

6.1

-91.9

5.9

1970

7.7

-152.9

14.7

1972

7.8

-196.7

5.4

1974

-5.4

-91.9

27.2

1976

-6.3

-302.6

9.8

1978

0.7

-50.0

34.9

1980

-5.7

-166.0

27.2

1982

0.96

-387.9

6.5

1984

-0.9

-291.1

31.2

1986

1.9

-24.7

10.4

1988

0.6

34.5

8.5

1990

5.5

-328.0

29.8

1992

1.5

10.9

40.2

1994

1.1

18.3

26.7

1996

-1.8

-139.3

15.8

Extracted from the Jamaica Human Development Report 2000, p. 8 The deterioration in economy went hand-in-hand with deficiencies in the operations of the public service, especially in the area of customer service. There were many consumer grievances made against the public service at those times. By 1978, two offices of public Ombudsman were functional-the Office of the Parliamentary Ombudsman and a second Ombudsman Office designated for public utilities. The former office gave citizens the opportunity to seek redress against rights allegedly infringed by the government bureaucracy. From January 1979 to October 1998, a total of 13,085 complaints were made to the office for assistance and out

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of this 12,750 were investigated. Most of these complaints were reportedly made against the court system and the Department of Correctional Services (Jamaica Human Development Report 2000: 107). The utilityrelated Ombudsman Office received 243 complaints between 1996 and 1998 which were mainly about the accuracy of bills and meters issued by the two utility providers of water and electricity- the National Water Commission and the Jamaica Public Service Company Limited (Jamaica Human Development Report 2000. Table 2 (see Appendix 1) gives details of the national debt situation in Jamaica in contemporary times, and indicates the huge debt burden that policy makers and administrators have had to grapple with in the daily management of the country. A composite of GDP size, BOP current account balance (refer from table 1) and the structure and size (151% of GDP in 2002-2003) of the national debt, had serious implications for the scale of government operations, size and number of public agencies, the range of specialized departments and specialist consultants or advisors that government can afford to support and maintain for public sector development. There were other deep-seated problems related to the inability of the public sector to hire and motivate the right calibre of personnel because of uncompetitive wages and poor conditions of service. These deficiencies formed the basis for a comprehensive public sector reform. The rest of this chapter offers a brief review of the Administrative Reform Programme I (1984-1994), but focuses mainly on examining the strategies adopted in the Phase II of the public sector modernisation programmes (1996-2002) and the continuation of the reforms in the form of ‘public sector modernisation vision and strategy (2002-2012). This paper was completed by drawing on the various consultancy reports, programme review documents produced by government agencies, personal experience of reviewing government performance in Local Government Reform and poverty reduction programmes managed by the public sector in Jamaica.

The Administrative Reform Programme 1984-1995 The philosophy behind the Administrative Reform Programme (ARP) in Jamaica was that the country needed to develop a more market driven economy. This meant that the public sector, rather than being directly involved in commercial, industrial and service delivery, had to create the administrative and other environment necessary to enable private sector development. A programme of administrative reform aimed at creating a competitive environment for productivity was envisioned. This

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necessitated the upgrading of revenue and investment institutions, the introduction of institutions to undertake the process of privatization of existing governmental commercial enterprises, and providing incentives for production (GoJ, ARP 1989). The terms of reference of the Administrative Reform Programme indicated that the focus of improvement was going to be one of enhancing the capability of line agencies. It, therefore, focused on improving the management structures, systems and operations of the Public Service in order to enhance efficiency, effectiveness and responsiveness to public needs. The objective was to decentralize some of the responsibilities of human and financial tasks to these line agencies, which were to be accountable for attaining specific objectives. These objectives were broken down into implementation tasks, which formed the basis of assessing individual performance (GoJ, ARP 1989).

Implementation of the Administrative Reform Programme The administrative reforms that took place between 1984 and 1995 had many different components and seem to have taken place on an incremental basis. The reform between 1984 and 1988 was basically driven by the imperatives of the structural adjustment programme which the country pursued with the help of the IMF and the World Bank. The international economic crisis of the late 1970s and early 1980s had a debilitating impact on Jamaican public management. Of course, there were originally the commonly known perennial weaknesses of the public service to deal with, but the financial crisis engendered by the 1979 oil price shocks had a severe impact on a small non-oil producing country like Jamaica (Harrigan 1991; Nettleford Report 1992). In addition to this, there was the failure of the country’s public enterprises to achieve the developmental goals originally set for them in their articles of incorporation. This general crisis of governance led to a dependence of the country on foreign aid programmes. In responding to the strain on financial resources in the economy, as well as the weak capacity of the public sector, government intervened in public management by imposing additional regulation, setting of new guidelines for effective performance standards and maintenance of appropriate organizational and systems control (GoJ, ARP 1989:1). The administrative reform of this era proceeded after initial restructuring of the economy in the trade, exchange and taxation systems, which were aimed at reducing the operational costs of the public sector.

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Midway through the economic adjustment it became apparent that there was shortage of qualified technical personnel and a lack of proper control in the budget and cash management systems of the programme. It was at this juncture that the idea of a comprehensive programme of administrative reform of the public service was mooted. The Administrative Reform Programme, to be precise, started as a broad integrative programme aimed at improving the operational effectiveness of government. The programme comprised three distinct but operationally interrelated components. These were Human Resource Management, Financial Management, and Line Agency Restructuring (GoJ, ARP 1989: 4). According to the World Bank’s Project Completion Report on the ARP, The project outcome is rated as unsatisfactory while institutional development and sustainability are rated as negligible and unlikely, respectively (World Bank 1995).

The report provides sources for much of the ARP failure including (i) "much of the reform initiative focused on the longer term at the expense of short term results" (World Bank 1995, vi), which is a demonstration of lack of a clear vision and articulation of all objectives; (ii) Consultants under the project often worked separately, rather than as a team, and often in the absence of counterparts from within Government, once consultancies terminated, reform efforts waned (World Bank 1995, v).

(iii) "the lack of continued commitment (by Government and the World Bank) to the longer term doomed some reasonably successful efforts" (World Bank 1995, v); and (iv) "very little equipment was budgeted for this project ($100,000), yet the project called for the development of large scale management information systems" (World Bank 1995, vi), which demonstrates lack of flexibility and vision on the part of the reform design. The World Bank report contained a response by the Government of Jamaica to some of the issues raised by the Bank. This part of the report also provided reasons for the failure for ARP, some of which are similar to those identified by the Bank. In reference to consultants, the government report conceded that: The absence of a suitably articulated master plan for this phase virtually

52

Chapter Three permitted consultants to assume too much of the leadership role and left very little for independent monitoring activities. In some cases, consultants attempted to dictate the conduct of work and in many instances the agencies or persons concerned were unprepared for them. They were not provided with full-time counterparts to carry on in their absence, thus impeding continuity of effort and skills transfer (World Bank 1995, 30-31).

The above quotation demonstrates lack of clear vision and a lot of donor involvement, leading to lack of ownership and commitment to the ARP by the Jamaican leadership. Moreover, the government report admits that, "the targets set for the project were clearly too ambitious" and were not prepared "in collaboration with Ministry personnel expected to lead key areas" (World Bank 1995, 31). This implies a lack of diagnosis of reform design involving all stakeholders as well as lack of reform focus. This formed an essential backdrop against which a new programme was adopted.

The Premise of Public Sector Reform Jamaica, with substantial external assistance has pursued approximately 30 projects in support of public sector reform since 1996 (Ministry Paper 56/2002). The reforms were necessitated by five main developments in society which are: (1) a redefinition of the role of the state said to have been driven by the global neo-liberal agenda (2) fiscal austerity which the country had been experiencing over the years (3) rising expectations of the society for efficient and better public services (4) need to align national governance systems in response to globalisation and (5) need to catch up with developments of the information age (Davis 2001: 6). The PSMP aimed to succeed where the administrative reform programme had under achieved. To do so the protagonists of the PSMP aimed to achieve the following goals: 1. Enhance accountability by strengthening policy development and internal and external controls; 2. Improve customer service delivery; 3. Continue the rationalisation of the sector; 4. Improve the efficiency of government procurement and contracting mechanisms and; 5. Improve financial and human resource management through computerised information systems. The Cabinet Secretary and Head of the Civil Service in Jamaica have contended that the achievement of these objectives “is not a matter of

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choice, but a matter of necessity and survival” (Ministry Paper 02/56: 8). The rest of the paper focuses on the phase II and continuation programme of public sector reform between 1996 and 2004. It is organised into three main sections. The first examines how government operationalised the first three goals outlined above which are related to the good governance of the public sector. It explores the modernisation of ministries and departments of government, in particular the transfer, adoption, adaptation and institutionalization of the executive agency model of public service delivery, contracting out, the new customer service focus and the introduction of strategic planning, as well as privatisation of some key public enterprises. Section two assesses the measures introduced to improve the efficiency of government procurement. Section three investigates the strategies for improving financial and human resource management. In exploring these issues attention is given to the politics of reform, culture change in the public service and the challenges posed to the programme by the simultaneous pursuit of parallel (equally demanding) policy objectives. The limitations to action engendered by more than a decade of negative economic growth and worsening debt situation since 1989 are also touched upon.

Section 1 Good Governance of the Public Sector The overarching objective of the governmental system for achieving results was pursued on projectised basis. Under the Public Sector Modernisation Project (PSMP) funded by the World Bank, and the Jamaica Performance Improvement Programme (JAPIP) funded by the UK Department for International Development (DFID), the initiatives pursued by the Jamaican government included: 1. The permanent secretaries accountability framework; 2. The strengthening of corporate planning function; 3. The strengthening and deepening of the audit system; 4. The review of Public Service Regulations and Staff Orders; 5. The reform of social policy development, implementation and evaluation (JSAPEV); 6. The reform of secondary education (ROSE); 7. The development of a financial management information system (FMIS); 8. The development of human resources information system

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Chapter Three

(HRMIS); 9. Pensions reform and; 10. The tax administration reform project (TAXARP).

Modernisation strategy The modernisation of public sector institutions required diagnostic services which normally include a review of the core functions of the existing entities such as their organizational configurations and of the factors bearing on their efficiency, for example, organization and management, business process re-engineering, human resources development and information technology. The modernization of the departments/divisions and strengthening of a ministry or department normally consisted of two stages. In the first stage a strategic assessment (Prior Options Review) and a diagnostic study is undertaken. The Prior Options Review detailed and assessed the different organizational options to undertake the modernization and an option selected before the detailed diagnostic study begun. Three outputs required to establish the groundwork for the modernization process are as follows: 1. A Modernization Plan (MP)-based on a detailed review of the mission, objectives, environment, organizational structure, management, business processes and resources of the concerned entity. 2. A Medium Term Financial Plan (MTFP)-an analysis of the projected expenditures of the entity, over a five-year horizon, both for meeting expected performance targets and completing the modernization process. 3. A Framework Document (FD) and a Performance Agreement (PA)-will constitute the basic contract between the entity management and its superior authority and would inform all areas of the entity’s operations. The PA is the formal agreement between the responsible Minister and the CEO, for achieving the agreed targets in the FD. In the second stage, the MP is implemented and the MTFP and the FD & PA are put into operation. Based on the modernisation strategy some ministries and departments are designated executive agencies and others are ordinarily modernised. The personnel function of the public service had traditionally centralised in the Office of the Services Commission (OSC). Part of the ongoing reform had been the issuing of human resource management (HRM) authority by delegation to all ministries and departments. In this regard, fourteen entities have received delegated

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55

authority including the Ministry of Finance and Planning (MoFP) (and Revenue Services) in financial year 2003-4 because they met the required standards set out by the OSC. The Child Development Agency received delegated authority on May 31, 2004. To each permanent secretary of the various ministries was delegated authority for HRM from the Services Commission, while at the same time the traditional accounting officer role of the permanent secretary has been tempered with by the establishment of executive agencies. A detailed discussion of this issue is provided under the subsection on executive agencies. All these strategies of reform are underpinned by the principles of the new public management.

New Accountabilities The essence of the Jamaican public sector reform is that government and people are agreed on the need for better performance in governmental output and overall improved outcomes. This desire is captured in the practice of performance management. Equally worthy of note is that accountability and better performance outcomes are not achieved without any effort. These are achieved by negotiated changes in institutional governance with relevant political forces which include the setting out of enhanced ethical standards and new codes to ensure measurable accountability. Of particular interest in this development was Ministry Paper No. 19 of 2002 which established a code of conduct for Ministers of State. This code drew significantly from the code applicable to members of the Government of the United Kingdom which had been significantly revised in 1994 based on the Recommendations of the Committee on ‘Standards in Public Life’ which was headed by Lord Nolan. The basis of borrowing institutions of this nature can be found in the logic that the country is still constitutionally and culturally linked to the United Kingdom because the Queen of UK is still the Head of State in Jamaica, and is represented, in institutional terms, by the Governor General. The code of conduct for Ministers emphasised the following values: selflessness, integrity, objectivity, accountability, openness, honesty and promotion of good leadership (Ministry Paper No. 19/2002). A new accountability agreement between the permanent secretaries and the cabinet secretary has been implemented, and Staff Orders revised and launched in July 2004 which took effect on August 1, 2004. These changes were underpinned by a clear policy document that sought to enhance staff commitment through training and established effective control mechanisms. Chapter 4 of the Revised Staff Orders contains the code of conduct for public officers including those in management

56

Chapter Three

positions. In that chapter also, the principle of political neutrality of public servants has been reaffirmed (chapter 4 Section 4.2.6). However, a culmination of all the reforms on making the public services more accountable was negotiated in the Public Bodies Accountability Act 2004 which was passed in the Senate in December 2004. This has added to the battery of laws and regulations governing accountability in the public sector including, among others, the Financial Accountability and Audit Act, the Financial Instructions to Executive Agencies, and the Corruption Prevention Commission Act.

Human Resource Management Reforming the Human Resource Management (HRM) component involved instituting several plans: 1. ‘Restructuring/Reorienting Central Personnel Agencies such as the Ministry of Public Service (MPS), Office of the Services Commission (OSC), Public Service Commission (PSC) and decentralization of some personnel actions. This was expected to build the capacity of those agencies to perform mainly policymaking, regulatory, appellate and common service provision, and also to build the capacity of line agencies to carry out decentralized personnel functions. New operation divisions were created which focused on facilitating and expediting coordinated personnel and human resources support services to line agencies. A Standards and Policy Division was created and proposals were also made for delegation of disciplinary actions to Permanent Secretaries’ (Tindigarukayo and Chadwick: 1998). 2. Compensation Improvements were also undertaken. The government made a policy to upgrade remuneration to the public sector based on 80% of the market (Parliamentary Salaries Committee: 2003). Factors such as the signing of a Memorandum of Understanding between government and the Jamaica Confederation of Trade Unions (JCTU) on the need for pay restrictions in response to the growing public debt has reduced the chances of realising this goal. 3. Computerisation of personnel data. This helped to build the capacity of central government to maintain accurate employment records and statistics on individuals and pensioners. It also helped to develop the capacity to identify and channel personnel to high priority Government programmes. 4. A Human Resource Management Information System (HRMIS)

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was designed and installed. It is essentially a comprehensive data bank that allows users to make analysis, decisions and projections regarding every aspect of human resource development in the public sector from employment to training to succession planning and retirement. According to the government human resource experts, this information system affords a ‘global view’ of the manpower available and seeks to modernise and revolutionise the personnel function from one that was primarily record keeping to genuine human resource and knowledge management (Ministry Paper 39/2000).

Fiscal and Financial Management Reforms A comprehensive tax administration reform project (TAXARP) was undertaken in the mid-1990s which represented the second phase of revenue reforms in Jamaica. The first phase consisted of reforms brought about by the Jamaica Tax Structure Evaluation Project (JTSEP) which took place between 1983 and 1985. The JTSEP was jointly funded by the Government of Jamaica and the United States Agency for International Development (USAID), and was undertaken by Roy Bahl and his team from the Metropolitan Studies Program of the Maxwell School of Citizenship and Public Affairs in the United States. The JTSEP was motivated by three underlying problems within the Jamaican tax system. The first was that tax levels were high at the time when Jamaica was moving towards reducing the size of the state. The main contention at the time was that a reduced state sector should go with reduced taxes as the counter factual was that “one cannot have both an expansive public sector and low tax rates” (JTSEP 1985: 2). The second problem was that the tax structure was out of sync with stated government objectives of promoting private sector led economic growth. It was diagnosed that the prevailing tax structure which had high marginal revenue rates were inhibiting risk taking and investment and encouraging tax avoidance, evasion and capital flight. The third issue was directly related to poor tax administration. Indeed, the main argument posed by the JTSEP report was that because Jamaica had a complex tax structure, this meant implied high compliance costs and an added disincentive for compliance. This was compounded by inadequate administrative systems and procedures and an apparent lack of will on the part of government to enforce the existing revenue laws. The report called for a comprehensive approach to building administrative capacity and institutions supportive of reform which included a phased implementation of tax administration

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reform. A Ministry of Finance and Planning Memorandum on the 1996 Budget laid down the raison d’être for the tax administrative reform (TAXARP). It acknowledged, During the 1980s, Government embarked on comprehensive policy and administrative reforms. Though substantial policy reforms were enacted, administrative reforms lagged (quoted in Noble 2003: 59).

The main purpose of TAXARP was therefore to focus exclusively on the administrative dimension of tax reform with the primary objective of raising more revenue for national development. Almost synchronously customs administration also underwent separate reforms. Further discussion of this is provided later on in the chapter. TAXARP as a distinct policy development actually begun in 1994 with funding to the tune of US$42 million from the World Bank and it was to run for six years. The objectives of the TAXARP were five fold. These were to: 1. Broaden the tax base by increasing the number of registered taxpayers and reducing the number of deductions, exemptions and concessions granted by the tax laws; 2. Strengthen the organisation and management of tax administration by restructuring the tax departments, introducing modern management systems and improving training and remuneration structure; 3. Improve the control of tax evasion by strengthening the investigation, auditing and assessment capabilities of the tax departments; 4. Improve tax collection by introducing new collection systems and improving recovery of tax arrears; and 5. Facilitate voluntary compliance by improving equity, fairness and efficiency of the tax system (World Bank 1994: iv). The outputs of this reform are many. These include the creation of five tax administration departments as follows: Tax Administration Services, Tax Payer Audit and Assessment, Tax Appeals, and Jamaica Customs. These departments are meant to provide greater control and better customer services. There are now thirty-two (32) collect orates across the island and these have been refurbished to provide a good business climate (Ministry paper 56/2002: 38). The objective of broadening the tax base was achieved with the introduction of an identifying number for each taxpayer called the Taxpayer Registration Number (TRN) on November

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18, 1996. Section 17D of the Revenue Administration Act, 20 of 1999 imposes a fine on persons liable to pay taxes who do not apply for a TRN. Compliance is further helped by additional penalties which the Act imposes on culprits for failure to comply with tax obligations. According to the 2002/2003 Jamaica Budget Memorandum, these measures have paid off in that the number of identified and registered taxpayers has increased by 60 per cent since Financial Year 1995/1996 (Noble 2003: 61; Ministry of Finance 2002). In terms of strengthening the organisational basis of tax administration, the former organisational arrangement whereby the Financial Secretary headed the 6 line departments based on tax type has been modified. With the review introduced by the Revenue Administration Act, 20 of 1999, the organisational structure has changed to reflect functional areas. A Director General of Tax Administration (DGTA) now supports the Financial Secretary in matters on tax. The Commissioners of the tax administration bodies now report directly to the DGTA who is assisted by an Executive office staffed by advisors and analysts who specialise in various areas of tax administration (Noble 2003: 63). Customs administration has benefited by the establishment of Jamaica Customs which has considerable discretionary decision-making powers. The achievements attained with respect to this aspect of the reform have been aptly summarised by the government as follows: 1. 2. 3. 4. 5.

Establishment of a Valuation Unit to oversee implementation of World Trade Organisation (WTO) standards. Completion and distribution of a valuation manual Training of 80 percent of all customs brokers; Pre-arrival processing of import entries in place to facilitate clearance of goods on arrival of vessels; and Completion of recruitment for senior level staff (Ministry Paper 56/2002: 38).

Creation of Executive Agencies An executive agency has been seen essentially as a governmental organisation, separated from, but connected to its parent ministry/department not through the traditional hierarchy, but through new reporting systems and contractual arrangements, and with its chief executive officer given delegated authority with regard to the management of financial and human resources (Osei 2001). The executive agency has been given authority to make decisions on operations and implement public policies emerging from the central government. The Jamaican

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model of executive agency was borrowed predominantly from the British model and has as a consequence retained certain essential elements of the latter including the method of holding the chief executive accountable through the practice of ministerial responsibility. In the process of adoption the Jamaican government identified some aspects of the UK model that worked well and adapted them to the Jamaican reality. The lessons drawn were summarised as follows:

ƒ ƒ ƒ

The work of each department must be reorganized in a way that focuses on the job to be done the systems and structures must enhance the effective delivery of policies and services. The management of each department must ensure that their staff has the relevant experience and the skills needed to do the tasks that were essential to effective government. There must be real and sustained pressure to perform on and within each department for continuous improvements in the value for money obtained in the delivery of policies and services (Davies 2001).

The main objectives of Jamaica’s reform included changing the values and attitudes of the public sector to achieve efficiency, cost effectiveness, transparency, responsiveness and accountability. This involved reorienting organizational culture such as, focussing on using the available inputs to effectively achieve the outputs and desired outcomes. It also meant developing a customer service orientation culture which includes meeting the demands of clients and customers, simplifying procedures and information for citizens, for example the use of citizen charters, (Kaul 1997, Davies 2001). According to Armstrong (2001) the government’s main objective of changing the operating culture from one centred on compliance with externally imposed rules to one, which encourages managers to do their best with the resources at hand. What was to distinguish the executive agency from a traditional department or ministry under the old civil service, according to the management-consulting firm KPMG includes the following: 1. Executive agencies emphasize quality; 2. A culture of commitment to identify and meet customer requirements. 3. Refine standards for each area of activity; 4. Regularly assess performance vs. customer expectation; 5. Valuing customer complaints; 6. Emphasizing customer service; 7. Telling the public what to expect;

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8. Telling the public how to complain; 9. Making services contestable; 10. Performance indicators; and 11. Continuous improvements. (KPMG 2000). The formation or conferment of executive agency (EA) status is process ridden. In Jamaica the departments or entities identified as likely candidates for EA status are initially designated as transition agencies. Before a transition agency can be granted full EA status it will, during its transition period, be expected to put in place: corporate and business planning processes; budgeting procedures; appropriate key performance indicators (KPIs) which must be discussed and agreed with the portfolio Minister; financial systems (not necessarily computerized) including accruals financial accounting and management information systems, payroll, income, purchasing, cash control and cost and management accounting (to establish the full costs of all the goods and services it provides; proper controls in all the systems (manuals and computerized); policies to establish the degree of cost recovery for all goods and services; and an adequate and effective internal audit function. In all nine EAs have been established in Jamaica since 1999. These were established at three different time periods. The first generation of entities to be granted EA status were: the Administrator General’s Department, Registrar General’s Department, Management Institute for National Development and the Office of the Registrar of Companies. These were inaugurated officially on April 1, 1999. The second generation of EAs consisting of the National Works Agency, National Land Agency, National Environment and Planning Agency and the Jamaica Information Service were established in April 2001. Only one EA-the Child Development Agency-has so far been created under the third generation category. The Government spent $1.56 billion on the Public Sector Modernisation Project, and out of this $619 million was spent to create executive agencies. It has been revealed that US$ 59 million was spent to modernise the first four agencies between 1996 and 1999 (PSMP Online Vol. 1 Issue 2, 2003: 3). However, some entities which were initially slated for EA status were only modernised in the end. These include the Planning Institute of Jamaica (PIOJ), Jamaica Promotions (JAMPRO) and the Customs Department. With regard to the last two entities an amount of $446.6 million was spent on their modernisation. Some interesting results have been reaped from the executive agencies although there is room for continuous improvement in internal management culture change, management employee relations, employee motivation, response time, customer relations and user fee collection. The

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areas listed above are important indicators for examining overall success of the EA experiment. Internal assessments of the EA reform by the Policy Reform Unit of the Cabinet Office and of course, general unscientific observation indicates that customer service has improved considerably in most of the agencies. Customer satisfaction survey of the first four agencies from 1999/2000 to 2003/2004 financial years has shown a progression from 83%, 90.3%, 94%, 95.1% and 95.7% respectively. Key performance indicators (KPIs) have also been achieved to a satisfactory level, according the cabinet Secretary and Head of the Civil Service, Dr Carlton Davis (Cabinet Office, corporate information 2004: 14). Using the user fee collection as a yardstick for assessing the performance of the agencies that have been authorised to do so, it can be gleaned from information supplied by the Cabinet Office that the first four EAs have been making sturdy progress. Between 1989 and 1999 the collections amounted to $92.9 million, but with modernisation, this rose to $222.56 in 1999/00, $347 million in 2000/01 and $503 million in 2001/02 financial years. The main criticism of the EA model is that customer service has not improved in any significant way, but that user fees have been artificially linked without the commensurate value for money.

Revenues Earned FYs 1989-2002 ($M) 600

503

1.2

500

1

400

0.8

300 200 100

0.6

347

0.4

222.56

0.2

92.9

0

0 1989/99

1999/00

2000/01

2001/02

Source: Cabinet Office (2004) Corporate Information

Customer Service Improvement One other institution that was borrowed from the British experience in Jamaica’s bid to improve the delivery of public services was the Citizen’s Charter. The underlying principle of the Citizen’s Charter is the

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recognition of the taxpayer as a customer, and hence the need to improve the quality of services that government agencies offer to citizens. A typical citizen’s charter addresses issues related to the standard of services offered by the organisation, allows for access to information regarding the response time for the provision of citizens requests. The charter also allows for citizens to make an input into the agency’s policy making through the comments they offer to improve services. These comments are placed in suggestion boxes which are normally situated in a conspicuous area of the agency. In a nutshell, the citizens’ charter describes the services that governmental agencies offer and what citizens are to expect. The charter outlines citizens’ rights and tells citizens how to make their complaints when these rights are infringed. In all, some fifty eight (58) governmental agencies and departments have developed a Citizen’s Charter, while some agencies and departments are developing a Second Edition of their Charters. Twenty (20) agencies and departments are in the process of preparing a Citizens’ Charter for the first time, (www.cabinet.gov.jm, 6/1/2005).

Privatisation, Contracting out and Regulation Economic structural adjustment engendered the need for adopting a policy on privatisation. The underlying reasons for privatization of public services and public assets in Jamaica include: (i) government withdrawal from activities, in which it has no comparative advantage, in order to improve on its performance; (ii) avoiding financial drain caused by inefficient public enterprises; (iii) reducing the size of the public service to enable government to pay motivating wages to fewer employees which, in turn, would improve efficiency and effectiveness in the public service through its financial capacity to attract and retain high quality individuals; and (iv) encouraging private investments in areas that are vital for the development of the country. The meaning of privatisation that was adopted and applied by the government was a very broad one. It included policy and business activities such as direct sale of public assets, imposition of user fees for services where there was non-previously, for example, in health provision; private finance initiative (PFI) type of partnership such as in the case of the Highway 2000 project which intends to build a 230 kilometre first class road network to connect the main tourist centres in the country; and management contracts. Contracting out has been used at the service level, especially in the health sector where cleaning, catering and security services have been contracted to private providers. Management contracts

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were also tried for the running of the Sangster Airport in Montego Bay. The licensing method was used in the case of the divestment of the Telecommunications of Jamaica Limited (TOJ)-the public telecom operator. The proceeds from privatisation were needed to shore up the current account balance and give government some much-needed relief in the short term. A number of public service enterprises have been identified and privatised under the PSMP. The main components of the project have included: (i) partial privatisation of the water and sewerage sector, in order to ensure economic allocation of water among competing users and to improve the quality of service provided to the public, as well as allow for the non-state sector to participate in those economic activities; (ii) privatisation or contracting out some of government facilities and services, including national parks, the National Stadium and many other tourist attractions in Jamaica; and (iii) institutional strengthening of the National Investment Bank of Jamaica (NIBJ), which is the main implementing and coordinating agency for the privatisation programme. The Jamaica Public Service Company (JPSCO) - the electricity generator of the island- was privatised in 2001 and was bought by Mirant Corporation, an American energy sector company. A flagship policy which also was the first major divestment of state property happened in 1988 when the then Jamaica Labour Party administration granted the TOJ an exclusive licence to operate islandwide. This was followed by the acquisition of the government’s majority share ownership (79%) in TOJ by Cable & Wireless plc- a British based transnational corporation in 1989. The TOJ thus became Cable & Wireless Jamaica (C&WJ). The licence granted C&WJ a 25-year monopoly over all aspects of the local telephone network. The licence also entitled C&WJ to install or approve all attachments to the network and levy tariffs for such connections. C&WJ got a good bargain in that the company was, additionally, granted an annual guaranteed rate of return of between 17.5% and 20%. The existing laws governing the telecommunications sector at the time were the Telephone Act of 1893 and the Radio and Telegraph Control Act of 1973. The legislative framework was therefore archaic, no wonder Dunn (1994: 26) commented that at the time of the conclusion of these transactions, the global environment had changed and 7-10 years was regarded as the norm for investment recovery. However, the issue as whether the government got value for money has never been raised in public debates since the sale, except for the monopoly status granted, which proved a hiatus for further policy development in the mid-1990s in response to the dynamism of the industry.

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There was no modern regulatory institution put in place to ensure quality service and fair prices to customers. Brown (2002: 109) has noted that in the absence of a regulatory body the Department of Telecommunications of the Fair Trading Commission which was established in 1993 took a keen interest in monitoring competition issues related to the sector. It was in 1995 that a multi-sectoral regulatory body was established under the Office of Utilities Regulation Act. The Office of Utilities Regulation (OUR) has since provided an opportunity for institutional capacity development including deregulation of segments of the telecom sector and created a facilities-based competition. The deregulation of the Mobile Telecommunications sub-sector has provided room just big enough for three companies to operate- C&WJ, Digicel (Irish Based company) and Oceanic Digital Jamaica (ODJ) formerly Centennial Digital Jamaica. Licences awarded to Digicel and ODJ were on the basis of competitive bids. The licence condition requires 90% geographic coverage of the island within 5 years (Brown 2003), and this has been imposed by government with the view to ensuring universal access which is an important plank of telecommunications policy in Jamaica. Between 2002 and 2004 the national advisory council on telecommunications conducted public debates and studies regarding the further liberalization of the sector. It also sounded public opinion about the need for a separate telecommunications regulator for the country. There have been welfare gains in terms of increased access, internet coverage, and competitive prices for customers which were brought about by competition in mobile sub-sector. The telecommunications sector privatisation has therefore represented a policy arena in which modernisation has worked very well to enhance the achievement of national development objectives. Similarly, the role of the state has been altered significantly through the adoption of privatisation policy.

Section 2 Strengthening Government Procurement Procedures This reform was intended to address deficiencies in the procurement and contracting processes in order to enhance transparency and accountability in the public sector. This reform were implemented in three ways, viz.: (i) establishment of a procurement implementation unit within the Inspectorate division of the Ministry of Finance, which was made responsible for developing and updating procurement standards and

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procedures for the whole public sector; (ii) creation of an independent National Contracts Commission, chaired by the Contractor General and assisted by a small Secretariat of qualified professionals, in order to strengthen the office of the Contractor General; and (iii) strengthening procurement/contracting units and committees in ministries and departments through training, equipment and consulting services. In order to strengthen internal financial controls throughout the public sector, an Internal Audit Directorate (IAD) was set up within the Financial Management Division of the Ministry of Finance, with the following responsibilities: (i) to establish uniform operating standards and systems for conducting internal audits; (ii) set ethical norms; (iii) coordinate the training and professional development of internal auditors; and (iv) conduct internal control reviews. Moreover, the institutional capacity of the Auditor General would be strengthened through the provision of consultants, training and equipment to enable the office to enhance its auditing capabilities, especially in exercising external control over procurement and contracting decisions. Public procurement is an important arena of conflict in Jamaican politics. The Westminster-Whitehall systems of rule, with their imperfections have left a legacy in which the winner of general elections takes all the spoils (Ryan 1999). The spoils in question include the distribution of jobs and service contracts to the party faithful and cronies of political leaders. The problematic nature of this skewed approach to public allocation engendered a response under ARP I in the form of a search for an institutional solution. In 1983 an Act of Parliament was enacted which created the Office of the Contractor General-an ombudsman for public contracts in Jamaica. The Contractor General was given investigative powers without adequate muscle for enforcement. But continued institutional development of the agency was made part of the remit of the PSMP. As such an amendment to the Contractor-General Act (1983) has added a political dimension to the institution by creating a National Contracts Commission (NCC) as a commission of parliament whose responsibility it is to promote efficiency in the process of the award and implementation of government contracts and to ensure transparency and equity. The NCC was launched in October 1999. The NCC has worked through a strengthened Office of the ContractorGeneral (OCG) to establish an enabling environment for the governance of contracts. The NCC maintains a register and classifies contractors according to their capacity to engage in specific types of activity. It also keeps an up-to-date list of contractors, and monitors the financial, human resources and the technical capacity and performance of contractors. By

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way of deconcentrating its activities, the NCC has established four Sector committees at the Ministries of education, Environment and Works, Health, Local Government and the Urban Development Corporation (UDC). Contracts had been in use in the public sector in Jamaica well before the 1990s when NPM reform strategies from the OECD experience begun to diffuse into the policy-making arenas of the region. However, it is the intensity with which these new public business arrangements have been institutionalised which has marked the difference in the new governance.

Section 3 Strategies for improving Human and Financial Resources Development Along with the development of NPM strategies of reform has been the development of human resource management (HRM). Old personnel management practices have fallen out of fashion. Jamaica’s Public Sector Management Programme (PSMP), which is also known as Administrative Reform Programme II has since its inception in 1996 adopted the HRM approach, especially for the management the human resource planning function of executive agencies. The HRM approach adopted in Jamaica, for example, has overseen the revision of job descriptions for core civil service functionaries, especially permanent secretaries. Under this new regime contract labour is considered as a type of flexible labour arrangement. Bailey and Dunn (2002: 90) have observed the following as being associated with the new practice: that “professionals, technical and clerical personnel are more likely to be employed on contract than other occupational categories; and that the main reasons for using contract labour include the need for specialised skills, higher productivity, and better quality of work, lower and fewer benefits, lower training costs and uncertainty about the future of the business” (Bailey and Dunn 2002: 90). The table below shows the number of established and non-established posts. Information that this author collected from the Services Commission indicates the total number of persons employed on contract as follows: - 275 persons employed on contract in established posts. 266 persons employed on contract in non-established posts.

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Table 3. Established posts in the Jamaican public service (2004) Governor General Office

17

Survey

4

Auditor General

173

Office of Titles

10

Office of Services Commission

119

Ministry of National and Justice

438

Office of Prime Minister and Cabinet Office

486

Ministry of National Security

400

Jamaica Information Service Ministry of Finance and Planning

16

Ministry of Justice

142

2,990

Police Department

9,173

Accountant General

181

Administrator Generals Department

1

Customs Department

1

Court of Appeal

22

Tax Administration Directorate

3,522

Department of Correctional Services

2,456

Ministry of Foreign Affairs and Foreign Trade

391

DPP

66

Ministry of Industry and Tourism

55

Family Court

88

Ministry of Labour and Social Security

1,035

RM Court

476

Ministry of Education

948

Revenue Court

6

Ministry of Agriculture

910

Supreme Court

144

Forestry Department

174

Commercial Court

4

Ministry of Commerce, Science and Technology

283

Legal Reform Department

11

Post and Telecommunications

2865

Attorney General’s Department

80

Office of the Registrar of Companies

65

Trustee In Bankruptcy

16

Public Sector Reform in Jamaica

Ministry of Industry, Commerce and Technology Ministry of Water and Housing

37

Ministry of Environment and Housing

2

Ministry of Land and Environment

69

Office of the Parliamentary Counsel Ministry of Transport and Works

26

178

236

Ministry of Local Government, Community Development and Sports Ministry of Health

Town Planning

7

Bellevue Hospital

894

Land Valuation Department Registrar General’s Department

24

Government Chemist

34

78

Total Established Posts

40,801

307

391

10,802

The Civil Service Established Act General Order, 2004. Note: Total number of persons employed on contract: 275 persons employed on contract in established posts. 266 persons employed on contract in non-established posts.

Permanent Secretaries (PS) have now signed performance contracts with the Cabinet Secretary and have been given specific terms of reference and service level agreements, and they now have delimited tenures. The accountability of Permanent Secretaries to the political executive has been enhanced by through a new performance evaluation system. By 29 March 2000, four Permanent Secretaries had also been given increased autonomy in human resource functions through Instruments of Delegation, thus giving effect to the Delegation of Functions under the Public Service Regulations (1961). This singular act brought into being an ‘Accountability Agreement between the Public Service Commission and the Permanent Secretary’ (OSC Delegation/Agreement 2000). The new accountability framework for Permanent Secretaries was signed between the Cabinet Secretary and the Permanent Secretaries on March 31, 2000, and took effect on April 1, 2000. This framework carried specific performance indicators which the PS must meet, and its primary objective was to improve the level of accountability of senior public servants. The job of the PS until recently was the top civil service post in the British

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Commonwealth and the occupant usually held his/her post until retirement. The sort of autonomy given to the PS compares with the authority given to the Chief Executive Officer of the corporatized executive agency. In the newly established executive agencies, the job description of senior and middle managers’ posts were revised, and occupants of these posts were mandated to reapply for their posts without any guarantees of re-appointment. Most of the managers in the executive agencies are all under employment contracts together with the chief executive officer (CEO) of the agency who is herself/himself under a contract of service to the responsible minister. Under the Executive Agencies Act 2002 (Sec. 10) however, it is the PS of the responsible ministry who is charged with reviewing the performance of the CEO to verify if this is in conformity to the targets agreed in the Performance Agreement and the annual and quarterly measures. The CEO operates under a contract of service for a term usually not less than five years and he/she is, all things being equal, eligible for reappointment. The Executive Agencies Act (Act 4 of 2002) delegates the human resource and financial management functions from the permanent secretary to the CEO. The exercise of these functions is subject to limits and requirements set out in Section 127 of the Jamaican constitution. Section 18 (1) also empowers the responsible minister to prescribe a code of conduct for the officers and employees of executive agencies including matters constituting breaches of discipline. The new posts which were created in the establishment of executive agencies were made competitive and the requirements to fill them included advertising them in the press in a bid to attract the most qualified personnel both locally and internationally. A Human Resources Management Information System (HRMIS) has been established to deal with some of the chronic problems in personnel management. The HRMIS is a comprehensive human resource management information system that provides data on training, succession planning, pension administration and personnel profile reports on every employee in the public sector (GoJ/Update on the Orane Report 2000). The employment reforms under the PSMP have also involved job reduction the main objective of which was to achieve cost containment (McCourt 1998). As mentioned above, some workers had to re-apply for their jobs which they may or may not get. Job reductions were secured in a number of ways. The first was through voluntary redundancy. The second was through a practice in which the CEO could abolish an existing post leading to the retrenchment of the occupant. The third method is similar to voluntary redundancy but it is different in one respect in the sense that the

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occupant of a post would normally perceive that the new job description does not accord with his/her present lifestyle, and therefore opts out of joining or continuing with the executive agency. All three approaches to job reduction required the drawing up of a redundancy management plan. It is in this area that injustice is likely to occur if there is inadequate national planning or proper checks and balances built into current governance arrangements. Here, the existence of a constitutional provision does not necessarily mean that compliance would be automatic. The system is not full proof and therefore requires constant monitoring. Five main categories of employment contracts have emerged from the public sector reforms in Jamaica: a. New employment agreements for permanent secretaries; b. Contracts for chief executive officers of the newly established executive agencies; c. Contracts for senior management of executive agencies and other departments/ministries; d. Short term employment contracts for consultants and professionals. And e. Sub-contracts for temporary employment with contractors (who originally have contracts for service) (Osei 2003). The first two categories-employment agreements for permanent secretaries and agency chief executives are performance contracts which occupants of those offices ‘ought’ to achieve as the bottom line for retaining their jobs over the delimited period of their tenure. The selection procedure, leave entitlement, pension, appointment of the CEO and senior staff of the executive agencies in Jamaica were arrived at after consultations and discussions with key stakeholders including the trade unions, Office of the Services Commission, as well as staff of selected entities (On Line, July 1998: 4). These arrangements have been buttressed by provisions delivered by the Executive Agencies Act, 2002. The CEO’s position, according to the arrangements arrived at in the consultations, should normally be advertised internally and externally and the Public Services Commission (PSC) makes the selection. The Governor-General makes the appointment, upon the recommendation of the PSC and he also grants the Delegation Order which gives the CEO delegated authority that empowers him/her to appoint the senior staff and act as the accounting officer of the executive agency. The initial agreement reached by the stakeholders gave the CEO a three-year employment contract. However, the Executive Agencies Act revised this to five years (On Line, July 1998: 4; Executive Agencies Act, 2002 Sec. 6 (3)) Furthermore, it is important to note that the introduction of these

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alternative approaches to public service delivery has led to a balkanisation of the public sector into two contrasting cultures- new market-based arrangements with their own set of governing norms and practices on the one hand, superimposed on the precipice of old civil service practices and employment relations, on the other. This has provided a recipe for conflict due to the personal insecurity attendant, and a tendency to make anachronistic, trade unions and employee representative institutions. Freedom of association, a fundamental human right, seems to be under threat in the contemporary changed world of work in the Jamaican public sector. International forces are compelling the Government of Jamaica to make substantial revision of the Employment Termination Act which was enacted in 1974 to offer a bulwark to employees in cases of unfair dismissals and ensure that workers are given their due terminal benefits where it becomes necessary for retrenchment.

Concluding comments By September 2002 public sector modernisation in Jamaica had almost been institutionalised. This is evident in the adoption of a document called “Government at your Service: Public Sector Modernisation Vision and Strategy, 2002-2012”. It comes from Ministry Paper No. 56/2002 which sets out the government’s public sector modernisation strategy it hopes to follow throughout the next decade. By this document the Cabinet Office articulated seven national goals whose achievement will be critically dependent on the reform of public service. These goals are: 1. 2. 3. 4. 5. 6.

Sustainable development, The establishment of a quality society, A reduction in the proportion of Jamaicans living in extreme poverty, Increased accountability in both public and private sectors, supporting a reduction in corruption, A reduction in national debt, and Increased security for all (Cabinet office 2002: 5).

While a lot of changes have been made by the PSMP to the way the state operates, there is every indication in Ministry Paper 56/ 2002 that the reform is an ongoing process, and would probably require more time to take root and additional resources to effect the required level change. In light of this, a review of the programme by a parliamentary committee is instructive as it made the following recommendations: 1.

A coherent and widely articulated Vision and Strategy for Reform

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2. 3.

A new Permanent Reform Unit in the Office of the Cabinet MoFP should delegate its powers of establishment of posts and other matters to Ministries and Agencies; 4. PSC should complete its delegation of recruitment and similar matters to Ministries and Agencies 5. High-level Human resource management Vision and Strategy should form part of Recommendation 1. 6. Civil Service management should be delegated by MoFP and PSC to line Ministries and Agencies within "minimum requirements" rules. 7. Definition of "Civil Servant" should be clarified. 8. Staff of Ministries and Agencies, including Statutory Corporations, should belong to a single non-contributory pension scheme. 9. HRM processes should be re-engineered and simplified. 10. The Human Resource Management Information System (HRMIS) should be reviewed and redesigned or replaced. 11. The transformation should be planned and managed as a major change programme involving all stakeholders (www.cabinet.gov.jm).

These recommendations go to the heart of what is left to be done and the enormity of the reform problematic. So that even though Jamaica has made the most detailed reform in the Commonwealth Caribbean, it would require almost the same amount of human energies and ingenuity expended to fully transform its public sector to equal standards in the OECD.

References Armstrong, J. (2001) Executive Agencies and Good Governance. Caribbean Journal of Public Sector Management, Vol. 3, No. 1. November. 54-72. Bailey, B. and Dunn, L. L. (2002) Globalisation and Labour Market Transformation: Implications for Women’s Human Resource Development in Jamaica. In Human Resource Development and Workplace Governance in the Caribbean. Edited by Noel M. Cowell and Clement Blanche. Kingston: Ian Randle Publishers. 86-102. Blake-Hall, M. (2003) An Assessment of Organisational Reform at the Planning Institute of Jamaica. MSc. Research Paper. Sir Arthur Lewis Institute of Social and Economic Studies (SALISES), University of the West Indies, Mona. Brown, F. (2003) Has De-regulation of Public Utilities worked to improve Welfare? The Case of Telecommunication Reforms. Sir Arthur Lewis Institute of Social & Economic Studies, Seminar Series, November 12, 2003.

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Brown, F, A. (2002) Telecommunications Liberalization in Jamaica. International Journal of Regulation and Governance, Vol. 2, No. 2. 107-127. Cabinet Office, Office of the Prime Minister: PWC Recommendations on Central Government Public Sector Reforms and Human Resource Management Functions. www.cabinet.gov.jm. Accessed: January 10, 2005. CARICAD (1995) Problems in the Management and Reform of Public Sector and Public Enterprises in the Context of Adjustment and Growth Programmes in the Commonwealth Caribbean. A Report on Management of Public Enterprises in the Caribbean. Chaudry, S. A., Reid, J. G., Malik, W. H. (eds.) (1994) Civil Service Reform in Latin America and the Caribbean. Proceedings of a conference. World Bank Technical Paper Number 259. Washington, D.C.: The World Bank. Common, R. (1998) Convergence and Transfer: A Review of the Globalisation of New Public Management. International Journal of Public Sector Management, Vol. 11, No. 6. Pp. 440-450. Coore-Johnson, Y. E. (2002) The Before and After in Executive Agencies and Modernized Entities. The Public Sector Modernisation Project, PSMP/OPM. February. Davis, C. (2001) Executive Agencies in Jamaica: The Story thus Far and the Central Management Mechanism. Caribbean Journal of Public Sector Management, Vol. 3, No. 1. November. 5-11. Deakin, N. and Walsh, K. (1996) The Enabling State: The Role of Markets and Contracts. Public Administration, Vol. 74. 33-48. Dunleavy, P. (1997) The Globalisation of Public Services Production: Can Government be ‘Best in World’? In Globalisation and Marketization of Government Services: Comparing Contemporary Public-Sector Developments. Edited by Andrew Massey. New York: St Martin’s Press. 16-46. Eliassen, K. A and Kooiman, J. (eds.) (1993) Managing Public Organisations: Lessons from Contemporary European Experience. London. Thousand Oaks. New Delhi: Sage Publications. Flynn. N. (2000) Managerialism and Public Services: Some International Trends. In New Managerialism New Welfare? Edited by John Clark, Sharon Gewirtz and Eugene McLaughlin. London: Sage Publications Ltd. Pp. 27-44. Gayle, D. (1994) Expanding Jamaica’s Private Sector: Policy Sources and Interim Consequences. International Review of Administrative Sciences, Vol. 60. 71-101.

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Gleaner, June 9, 2000. ‘Government ready to move on labour laws’. www.jamaica-gleaner.com/gleaner/20000609/Lead/Lead1.html Government of Jamaica. 2002. The Executive Agencies Act, (Act 4 of 2002). —. 2000. Improving the Quality of Governance through Public Sector Reform. Ministry Paper No. 39/2000. —. (1998) Financial Instructions to Executive Agencies. Second Draft. November 11, 1998. Ref EAU-2. Jenkins, K. (1994) Jamaica Public Service Reform. Consultancy Report to the Overseas Development Administration. January. Jamaica Information Service (www.jis.gov.jm/information/Executive_Agency.htm). Accessed:18/8/2003. Jamaica: Report of the National Committee on Political Tribalism, 1997. King, D. and Handa, S. (1997). Structural Adjustment Policies, Income Distribution and Poverty: A Review of the Jamaican Experience. World Development, Vol. 25, No. 6. PP. 915-930. Kirkaldy, G. (1998) Industrial Relations Law and Practice in Jamaica. Kingston: The Caribbean Law Publishing Company. Kirkpatrick, I. And Lucio, M. M. (1996) Introduction: The Contract State and the Future of Public Management. Public Administration, Vol. 74. 1-8. KPMG (2000) Medium Term Financing Plan- Child Development Agency. Final Report. Office of the Ambassador, Special Envoy for Children. Kingston, Jamaica. September 7, 2000. —. (2000) Framework Document-The Child Development Agency. Final Report. Office of the Ambassador, Special Envoy for Children. Kingston, Jamaica. September 7, 2000. —. (2000) Modernisation Plan-The Children’s Services Division. Final Report. Final Report. Office of the Ambassador, Special Envoy for Children. Kingston, Jamaica. September 7, 2000. —. (1996) Jamaica: Agency Development Programme. Report to the Overseas Development Administration. McCourt, W. (1998) Civil Service Reform equals retrenchment? The experience of ‘right-sizing’ and retrenchment in Ghana, Uganda and UK. In Beyond the New Public Management: Changing Ideas and Practices in Governance. Edited by Martin Minogue, Ministry of Finance (2002) (http://www.mof.gov.jm/budget_memo/2002/appdx04.shtml. Charles Polidano and David Hulme. Chelthenham, UK, Northampton, MA, USA. 172-187.

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Ministry of Finance, 2000/2001 Budget Memorandum [Appendix 2]. (http//:www.mof.gov.jm/budget_memo/2000/appendix2.shtml). Minogue, M. (2001) Should Flawed Models of Public Management be Exported? Issues and Practices. The Internationalisation of Public Management: Reinventing the State. Edited by Willy McCourt and Martin Minogue. Edward Elgar: Cheltenham, UK. Northampton: MA, USA. Newman-Williams, M. and Sabatini, F. (1997) Child Centred Development and Social Progress in the Caribbean. In Poverty, Empowerment and Social Development in the Caribbean, Edited by Norman Girvan. Jamaica: Canoe Press, University of the West Indies. 50-78. Nettleford, R. 1992. Report of the Committee of Advisors on Government Structure. Ministry of Finance and Planning, Government of Jamaica. Nurse, L. and Best, S. (2002) Public Policy and Consensus Building in Workplace Management: Barbados. In Human Resource Development and Workplace Governance in the Caribbean. Edited by Noel M. Cowell and Clement Blanche. Kingston: Ian Randle Publishers. Office of the Services Commission (2000) Delegation of Functions under the Public Service Regulations (1961). Osei, P. D. (2001) Executive Agencies: Intellectual Background to the Search for Appropriate Institutional Forms. Caribbean Journal of Public Sector Management, Vol. 3, No. 1. November. 73-83. —. (2002) Strengthening Local Fiscal Capacity in Jamaica, 1993-2002. Social & Economic Studies, Vol. 51, No. 4. 31-62. Parliamentary Salaries Committee (2003) Report on Parliamentary Pay and Remuneration. Kingston, Jamaica. www.parliamnetarysalaries.org. Planning Institute of Jamaica (2000) Jamaica Human Development Report 2000. Kingston, Jamaica. Pollitt, C. (2001b) Clarifying Convergence: Striking similarities and durable differences in public management reform. Public Management Review, Vol. 3, No. 4. December. 471-492. Pollitt, C. and Bouckaert, G. (2000) Public Management Reform: A Comparative Analysis. Oxford: Oxford University Press. Sampson, C. (1996) Policy Reform for Sustainable Development in the Caribbean. In M. Garrity and L. Parkard (eds.) IOS Press Singh, P. (1972) Local Democracy in the Caribbean. Trinidad and Jamaica: Longman. Stewart, J and Walsh, K. (1992) Change in the Management of Public Services. Public Administration, Vol. 70. Pp. 499-518. Subramaniam, V. (1977) Transplanted Indo-British Administration. New

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Delhi: Ashish Publishing House. —. (1983) British Administrative Institutions: Paradoxes of Acceptance, Adaptation and Rejection. The Round Table. No. 287. Pp. 306-316. Taylor, O. (2001) The Regulation of Industrial Conflict: A Cross-Country Comparison of the Systems of Industrial Disputes Resolution in Trinidad and Tobago, Jamaica and St Lucia. Caribbean Journal of Public Sector Management, Vol. 2. No. 2. 23-37. Thomas, C. Y. (1997) A State of Disarray in Caribbean Public Policy. Bulletin of Eastern Caribbean Studies, Vol. 21, No. 6. Tindigarukayo, J. and Chadwick (1998) Civil Service Reform in Jamaica. www.undp.org. Accessed: 15 August, 004. Walsh, K. (1995) Public Services and Market Mechanisms: Competition, Contracting and the New Public Management. Basingstoke and London: Macmillan Press Ltd. World Bank (1994) ‘Reforming the Public Sector’. In Adjustment in Africa: Reforms, Results, and the Road Ahead. Oxford, New York, Toronto: Oxford University Press. —. (1994) Staff Appraisal Report: Jamaica Tax Administration Reform Project. Public Sector Modernization Division, Technical Department. Latin America and the Caribbean Region. —. (1996) Staff Appraisal Report. Jamaica Public Sector Modernisation Project. Country Department III, Latin America and the Caribbean Region.

APPENDIX

Chapter Three

3,611.74

50,138.70

170,806.9 3

33.41

168,780.5 0

101.2

3,653.85

22,980.80

144,873.2 4

33.36

128,347.7 0

112.9

92.6

209,365.9 0

40.02

193,843.4 5

57,675.00

3,402.51

1995/96

81.7

242,542.8 0

35.07

198,204.7 5

85,180.80

3,222.81

1996/97

83.7

261,876.6 0

36.51

219,214.9 5

101,540.3 0

3,223.08

1997/98

94.2

278,591.0 0

38.28

262,302.9 7

139,203.6 8

3,215.76

1998/99

101.9

302,850.0 0

42.14

308,687.8 3

175,322.7 4

3,164.81

1999/00

113.2

336,387.0 0

45.68

380,640.7 0

215,084.0 5

3,624.27

2000/01

Source: Debt Management Unit, Ministry of Finance & Planning, Kingston. February 2004.

National Debt/ GDP

Total Debt Stock (J$) End of Period Exchang e Rate GDP (1)

External Debt Stock (US$) Domesti c Debt Stock

1994/95

1993/94

136.1

365,188.1 0

47.61

497,082.6 9

300,201.5 3

4,135.29

2001/02

Table 2. Jamaica: Total Public Debt and Indicator, 1990/91-2002/03 (in millions of Jamaican Dollars)

78

151.8

396,097.3 0

56.24

601,241.3 0

366,158.1 0

4,180.00

2002/03

CHAPTER FOUR FACTS, MYTHS AND MONSTERS: UNDERSTANDING THE IMPLEMENTATION OF PUBLIC SECTOR REFORM IN SVG STEVE STEWART

Abstract Public Sector Reform often has limited success due to political interference particularly in the area of public sector employment. However, given the fact that political objectives are not always in harmony with the objectives of Public Sector Management (PSM), a country’s overall development may be adversely affected by political interference in public sector employment. This article argues that the challenge of achieving, simultaneously, the goals of PSM as well as the political objectives of the governing party lies in the institutionalization of a clearly defined, transparent and objectively implemented system of employee performance management. This paper seeks to examine the “the facts, myths and monsters which impact on the implementation of PSR in St Vincent and the Grenadines (SVG)”. It examines the employment policies and practices of the Government of St Vincent and The Grenadines and evaluates the impact of these policies on the ability of the state to achieve the objectives of Public Sector Management Reforms.

Public Sector Reform Public Sector Reform (PSR) can be defined in a number of ways. Brunsson and Olsen (1993) as cited in a discussion paper by Armstrong

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(1997) propose a number of helpful definitions and attributes of reform 1. Ryan and Brown (1992) also acknowledge similar perceptions about PSR2. The common thread inherent in these definitions is that PSR is essentially, an ongoing, dynamic and multi-dimensional process of change that seeks to transform the public sector into one that promotes efficiency and effectiveness in the quality of service being delivered. Reform is therefore about making a conscious attempt to change the values, attitudes, and culture of work in the public sector. These writers also suggest that reforms that are introduced must also be deliberate, planned and constructive in the use of resources. In other words, the implementation of reforms becomes the means to reinvigorate the state and bring about improvements in the use of resources and ultimately, to provide a better quality of life for the society. In addition they point out that while reform itself is an ongoing process with no final point, reform programmes must contain specific targets to be achieved within specified time frames if they are to be effective. One writer, Ayeni (2003) notes that PSR is a central concern not only in developed countries but also in the developing world. He observes that the more developed countries of the Commonwealth, in particular, those that are members of the OECD3, have recorded and documented remarkable achievements of their reform efforts but, he notes, that many countries, particularly the small-island states, have had a rather poor record of documenting their reform experiences. To a large extent, however, one major criticism of PSR is that related programmes are generic in nature and are sometimes copied without sufficient regard for the environmental differences in terms of history, culture, and geopolitical realities of individual countries. Some of these reform programmes include Performance Management System, Customer Service Delivery Improvement Programme, Decentralisation, Privatisation and Contracting Out, Organisational Restructuring, Regulatory Reform and 1

“Reforms occur when the gap between an organisation’s performance and the expectations attached to it becomes evident; it takes one of three directions: rationalization, power shifts and democratisation.” 2 “That there must be efforts which call for or lead to major changes in the bureaucratic system that is intended to transform the existing practices and behaviour within; A deliberate attempt to use power, authority and influence to change goals, structures or procedures of the bureaucracy and to alter the behaviour of the bureaucracy; To develop and put into effect the changes necessary to enable the administrative organisation of government to execute public policies in an efficient and effective manner.” 3 Organisation for Economic Cooperation and Development (OECD)

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Local Government Reform. In SVG there have been four major initiatives, which constitute PSR:  The implementation of the Performance Management Development System (PMDS);  The review of the existing legal regulatory instruments and the enactment of a proposed new Public Service Act;  The Customer Service Delivery Improvement Programme (CSDIP);  The development of a Reclassification Exercise for the entire Public Service. Of the four initiatives, one has been implemented. The report on the Reclassification Exercise was submitted to Cabinet in 2004 and is presently awaiting a decision. The review of the regulatory instruments has been suspended since 2002 with no clear direction as to any continuation of the process. Since the completion of a one-month customer service survey in seven selected departments in 2003, to date no further action has been taken on the CSDIP by the Public Sector Reform Unit (PSRU). Only the PMDS has had any ongoing implementation within the context of reform in SVG. Hence, this paper’s focus on PSR in SVG will consider mainly the implementation of PMDS as a reform initiative.

PMDS Kaul (2000) argues that performance management constitutes the foundation on which all public service improvements rest.4 He is also of the view that a sound performance management system will achieve the following: 1. will greatly assist the implementation of radical reform 2. is the point of entry to wider public service reform.5 Performance management is also viewed as the means by which public service goals are linked to individual employee’s performance targets, evaluation, and development. It provides a strategy for delivering a higher quality service and for increasing efficiency by enhancing accountability and individual motivation. It improves communication so as to assist organizational change by including all ranks of officers in the planning and evaluation processes. Earlier on, it should be recalled, Gray and

4 Kaul, Mohan: “Management Reforms in Government- An Outsider’s Inside View”; CAPAM, 2000, p. 159 5 Ibid p. 156

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Jenkins (1995)6 also suggested that for an organization to progress it was necessary to develop appropriate mechanisms for assessing performance at all levels and in different ways. The system of performance assessment as described by Strehl (1993) thus to a large extent emphasizes behavioural criteria and personality traits rather than objective dimensions of performance.7 Strehl observes that whilst the assumption is that performance is a function of the behavioural and personality factors, to prove this might be difficult since these factors do not reflect, in a methodological way intended notions or contents. Lynch & Nylan (1993) also contend that human resources are the basis of productivity. Hence, notwithstanding the importance of capital and technology, the critical objective of performance management is a literate, skilled, healthy and motivated work force.8 They believe that the best means by which to increase productivity is to improve the quality of the work force, undertake investment for improved productivity and enhance the infrastructure associated with productivity. What the literature points to, then, is that the importance of human resources in any public service context cannot be overstated and that the talents, skills and abilities of the people who make up the organisation are key to its success. Ayeni (2003) supports this view and further suggests that the public service must be equipped with the necessary resources, infrastructure and regulatory machinery necessary for competitive success if it is to rise to the prevailing challenges and show improvement. Consequently, this article argues, the socio-economic goals set by a government are not likely to be achieved if the human resources within the public service are not properly managed and developed. In the developed countries of the Commonwealth Caribbean, Public Sector and indeed Performance Management Reforms have become the focus of a number of governments9 primarily as a response to the need for a more managed and developed human resource. The underlying premise for the implementation of a Performance Management System requires, though, that serious attention be paid to the welfare of all public servants in an equitable, objective and transparent manner. This clearly has not been the case of SVG. 6

Op cit p. 89 International Review of Administrative Sciences; Vol. 59, 1993, p 83. 8 Ibid p. 52 9 Ibid p. 80, “The motivation and incentive systems of traditional public organizations (incremental pay scales, career systems, job security) have been attacked by reforms and performance-related reward systems and management against targets have been advocated” 7

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The Public Service in SVG It has been only over the last ten years policy-makers in SVG have given moderate to serious attention to public service matters. Indeed an attempt to reform the public service commenced in 199810 when the then Minister of Finance with responsibility for the Public Service, expressed dissatisfaction with the low levels of productivity of public servants. This attention was prompted in part by external pressures from the World Bank and the International Monetary Fund11 (IMF) to reduce government’s administrative cost. Pressure also came from the opposition politicians and taxpayers alike, who raised the issue of mounting public debt. It was observed that the wages and salaries of government workers in 1997 represented some fifty-eight (58%) percent of the recurrent expenditure of the government’s annual budget, which at the time exceeded the normal range of 40-45%. At the time when this observation was made, there was no structured unit in place to address public service matters. As a result, the Administrative Reform Programme (ARP)-launched in 1988 to address the need to attract as well as to retain qualified and motivated public servants by giving priority to a reclassification structure and salary plan-was one mechanism by which government proposed to increase productivity within the public service. In order to bring about change the Government proposed the relocation of the ARP from the Ministry of Finance to the Service Commissions Department (SCD). This took place in 1999. However, in 2001 the ARP was relocated to the Ministry of National Security, the Public Service and Airport Development and renamed the PSRU. Following the general elections of 2005 it was once more removed and placed with the Ministry of Rural Transformation, the Public Service and Ecclesiastical Affairs. With its inclusion in the afore-mentioned Ministries, the Public Service was now given ministerial status. The granting of Ministerial Accord in 2001 represented a significant development in public service affairs, which also suggested that a great deal of attention was directed to public service matters by the present government. Notwithstanding the foregoing, the seriousness of the issue of low 10

An address by Mr. Arnhim Eustace, Minister with responsibility for the Public Service to senior public servants. 11 These lending agencies often attach conditions to the loans granted requiring the governments to implement wide-ranging reform in the civil services aimed at reducing administrative cost.

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productivity and performance, earlier observed within the public service, engendered a need for the Government in 1998 to find a solution. Some of the options outlined, as possible solutions, by the then Minister of Finance included: 1. Cutting salaries and wages; 2. Imposing a freeze on increases in salaries and wages; 3. Retrenching public servants; 4. Increasing the levels of worker productivity. The last option was the preferred choice of the Government. Accordingly in 2000, the SCD was mandated to develop and manage a new Performance Management and Development System (PMDS). The ARP became a unit within the SCD and was given the responsibility for coordinating all related matters of the PMDS. The development of the PMDS represented one of the most significant public service reform initiatives to have taken place within the last ten years in SVG. It was also the most significant attempt by any Vincentian government to attempt to change the performance culture within the public service. The PSRU within the Ministry of Rural Transformation, the Public Service and Ecclesiastical Affairs currently spearheads the implementation of this new system and is responsible for coordinating other public service wide reform initiatives. In SVG there are approximately 5000 public service employees spread across twelve (12) ministries as well as a number of autonomous departments. The number of ministries increased from ten in 2001 to twelve in 2005. More than half the total number of employees are concentrated in three key ministerial services namely education, national security and health respectively. Another important institution of the public service in SVG is the Public Service Commission (PSC). The PSC is entrenched in the Constitution of SVG and comprises five members. It is also the principal agency of government with the responsibility for the recruitment, appointment, promotion and discipline of all public servants. The members of the Commission are all appointed on the advice of the Prime Minister and the Commission discharges its functions in accordance with the provisions of Chapter 2, section 77 through to 85 of the Constitution of SVG. The Constitution outlines that the Prime Minister must “consult” with the Leader of the Opposition with respect to one of the appointments. However, the acceptance of the recommendation of the Opposition Leader is usually at the discretion of the Prime Minister. The SCD is the government agency that is responsible for managing the functions of the PSC and is also charged with the overall management of the human resources throughout the public service. Public service

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employment is undertaken, to a lesser extent, by some individual ministries namely the Ministry of Education, the Ministry of Health and the Ministry of National Security with respect to the recruitment of entrylevel teachers, nurses and police officers respectively. Ministries with the approval of the SCD can also transfer their employees from one department to another within the same ministry. At a CAPAM12 sponsored Public Service Reform Training Programme13 Prime Minister Dr. Ralph Gonsalves in the feature address to the participants, identified twenty developmental threats14 that he believed should be overcome if the public service is to be more effective and productive. This observation by the Prime Minister indicates that some serious consideration has been given to the state of affair within the public service. Among the twenty threats mentioned the following have implications for the proper management of the performance of public officers and are also central to this paper: 1. Undue political interference in the quest for excessive power. 2. Marginalization of public servants by some Ministers of Government and Senior Public Servants who have an ‘ear’ to the Ministers or Prime Minister. 3. Lack of motivational options- bonus as a temporary motivation. 4. Bureausis- inability of Public Officers to adapt to change. 5. Dramaturgy- creating impression management; busy doing nothing. 6. Insufficient resources and inappropriate distribution of available resources. The Prime Minister’s address and a series of PSR leadership seminars seem to have provided the PSRU with the impetus to advance public education and awareness on PSR.

Political Dimension The political landscape in SVG is currently dominated by two main political parties: The ruling Unity Labour Party (ULP) and the oppositionled New Democratic Party (NDP). Governments have alternated between 12

Commonwealth Association for Public Administration and Management The programme was held from the 13th to 17th January 2003 in Kingstown and was facilitated by Director of CAPAM, Mr. Gordon Draper and John Wilkins from Canada. 14 See Service Commissions Department Newsletter, March/April 2003, p. 4 13

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both parties since political independence in 1979. The ULP is into its second consecutive term of office having won the last general elections held in 2005. The results of these last general elections gave the ULP twelve of the fifteen parliamentary seats with (55.26) percent of the popular votes and the NDP- three seats with (44.68) percent of the votes. Until 2001 the NDP occupied the government from 1984. It is understandable that in a two party system such as St Vincent and the Grenadines it is likely that whichever party assumes government, the political philosophy of that party, invariably, will affect operations within public administration. Hence, in SVG, one may therefore conclude that the political values of the ruling party will, consequently, influence the behaviour and modus operandi of public administration.

Public Service The success of any reform initiative is determined partially by the existing political and public service cultures, which is influenced to a large extent, by the values and principles of the ruling political party. In the case of small countries such as SVG, because of the relatively small size of the public service and the closeness of politicians to the people, there is a significant amount of familiarity with administrative heads and senior public servants by both parties. This quite often translates into deep involvement into the nitty-gritty of administrative activities resulting in bottlenecks and disempowerment of public sector managers. These situations are likely to result into the kinds of ‘threats’ described by Prime Minister Gonsalves namely: undue political interference, marginalisation of public servants, lack of motivation and the inability of public officers to adapt to change (i.e. bureausis). Also, in such small countries, most if not all, public servants support (some actively) one political party or the other, and, in fact, there have been incidents in the past where senior public servants have been known to give copies of sensitive and confidential documents to the opposition party. It is also quite common for supporters of a governing party to be rewarded with appointments, promotions, and overseas academic training or to be transferred to a more favourable working environment. Ministers of government have also accused some public servants of sabotage and of frustrating the implementation of some government projects and programmes. Current Leader of the Opposition and former Minister of Finance, Arnhim Eustace, in his 1998 address, for instance, highlighted some aspects of the Vincentian public service culture, which has had an adverse impact on the performance of the public service. In his

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call for change he stated that many public servants engaged openly in partisan politics15; that there were also attempts to sabotage Government projects and policies; that many persons would come to work late, leave early and did not perform; and that members of the general public were often ignored and treated with contempt and disdain. In 2005, the then Minister of Transport, Works and Housing, Sir Louis Straker, also accused some employees, who he alleged to be NDP supporters, of “doing all they can to frustrate other officials within the Ministry and the Government… and that they will be fired.” For the years (2002-2005) government bonuses have been awarded to all public servants at the end of each calendar year. However, these bonuses were not awarded based on appropriate performance measurement and thus many critics regarded it as a strategy only to appease public servants in an effort to maintain their support for the government in the upcoming elections. While, it was true that all public servants welcomed the ‘increase’ in income, many of them and indeed others have questioned the discretion of the government’s action in relation to the application of the PMDS. From a performance management standpoint this action by the Government was not properly justified. Many argued that bonuses should be earned on the basis of productivity and in consideration of one’s individual performance. The decision by Government to grant bonuses demonstrates clearly the dominance of political values and underscores the point that public administration is indeed political. While the government hopes that all public servants and the public in general can view its decision favourably, the grant of bonuses in these circumstances can, in essence, perpetuate the status quo and weaken the drive to engage seriously in any public sector reform initiative.

PSR Experience in SVG The Introduction of PMDS The new programme planning and budgeting system introduced in 1998 provided the foundation for instituting the PMDS. As such, appropriate budgets granted must now be properly accounted for. Ministries and departments must now be directed to focus on performance 15 The fact that the then Deputy Leader of the opposition was able to read on television from a Cabinet Minute implied that some civil servants were providing opposition members with sensitive and confidential information.

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and results, which involves setting targets and measuring performance against the targets set. The introduction of the PMDS, which was developed in 2000, is the single most important initiative that has the potential for the overall development of all public servants who, undoubtedly, are the most important resource in the public service. Former Prime Minister and Minister with responsibility for the Public Service, Arnhim Eustace recognized the importance of this new system in his 1999 budget presentation. In his presentation, he expressed dissatisfaction over what he saw as low productivity by public servants. He stated that the country was not getting value for money from the public servants and that this situation must be corrected. The development of the PMDS came against the background of an existing performance appraisal system, otherwise known as the “confidential Reporting System” which is now largely abandoned by the SCD. The old system was criticised for its lack of transparency, objectivity and applicability to all public officers. It was described as highly subjective and non-participatory in nature. It was seen as an instrument used only to discipline the junior ranks of the public service. Favouritism, nepotism and other forms of patronage appeared to be the order of the day particularly in matters relating to recruitment, promotion, appointment and selection for training of public officers. Such practices also have significant negative impacts on morale, commitment and productivity within the public service.

Aims and Objectives of PMDS The principal objectives of the PMDS in SVG was to transform the Public Service into a vibrant production-oriented organization and to strengthen the capacity of Government to deliver efficient and timely service by managing, developing, recognizing and rewarding public officers based on their outputs and efforts. It was designed to improve individual and organizational performance, and sought also, to develop the human capacity. The PMDS required every ministry/department to prepare an operational plan using their respective corporate plans. The operational plan would outline the following: 1. The principal performance indicators of the ministry/ department for the particular year under review 2. The major related activities that are necessary to realise each performance target

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3. 4.

The timeframe within which each activity is to be carried out The specific officer who will be accountable for each of the activity 5. The expected result/outcome for each result indicator. It also required every public officer, in discussion with his or her supervisor, to prepare an individual work plan using his or her job description and the ministry/department’s operational plan. The new system was intended to provide the basis upon which officers would be promoted, appointed, or received academic or performance training or rewarded for appropriate performances.

Implementation of PMDS The orientation exercises and training in the new system began in February 2001 and ended in May of 2001. The PSRU with a staff of three officers along with trained volunteers from various departments undertook the task of training. During that period more than seventy-five (75) percent of all public officers across the entire country including those from the Grenadines were exposed to the new system. These orientations were to be followed by three-month rolling trials in all ministries and departments. The main objective of these pilot tests was to assess the employees’ understanding and use of the PMDS. A full one-year trial was also scheduled for 2002 with full implementation to be followed from February 1, 2003. The implementation of the PMDS has however, met with a number of challenges. At the time when the PMDS was gaining momentum, the incumbent NDP Government under which it was introduced was voted out of office following the general elections of March 2001. With the coming into office of the ULP Administration, the momentum was significantly reduced. Firstly, the lack of immediate attention to the programme by the incoming government could be attributed to one of two possible factors: (1) It may not have been one of government’s top priorities; (2) the delay may have been caused as a result of the setting up of the new ministry. Secondly, many public servants perceived the PMDS as a punishment tool of the outgoing NDP Administration, which was designed to get rid of opposition party supporters. Many of them refused bluntly to be part of the orientation and training exercises on the new system. Thirdly, many public servants saw the implementation of the new system as another exercise in futility, which would produce a lot of paper work only to be placed in a filing cabinet and be forgotten. Fourthly, implementation of the system was also adversely affected by the lack of resources (both human and

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physical) within the PSRU. Fifthly, there was also a perception that the PMDS was mainly for the junior ranks of the public service. Finally, the corresponding institutional mechanisms that were necessary for the effective functioning of the PMDS were not put in place. These were: the development of a human resource information system; the establishment of an appropriate appeals mechanism; the acceptance and use of the merit pay system; and the setting up of the performance improvement programmes (PIPs). A decision was taken to introduce a new trial of PMDS; this would take place in 2002. At the commencement of the second trial run, only two departments- the Electoral Office and the Treasury-completed all the requirements and were able to commence testing. In November 2002, a series of visits was made to most of the ministries and departments in order to determine the stage at which they were. The preliminary findings showed that officers were still having difficulties understanding the new system. Many of them were simply not interested. The low levels of support from some heads of department and senior public officers might have caused this lack of interest. It therefore meant that a third one-year trial was necessary and that the February 01, 2003 originally scheduled as the date of full commencement would be delayed. This third trial also encountered similar problems, as was the case with the previous trials. There were still several pockets of uncertainties during the implementation, which further eroded any confidence and trust in its purpose. The implementation of the trial runs was also affected by periodic disruptions caused by the transfer of public officers to and from ministries and departments. This meant that individual work plans had to be rewritten each time there was a transfer. Most ministries and departments never got off the ground since many of the officers were still without job descriptions and had not prepared their work plans- hence, the failure of the trial runs.

Review of PSR in SVG The successful implementation of PSR was, to a large extent, dependent upon the availability of the necessary resources, infrastructure, and the existence of the appropriate regulatory framework. While policy makers in SVG seemed aware of the resource requirements for PSR, there was no tangible effort to put these resources in place. As a result, the implementation process of the PMDS was suspended in 2003 and two independent reviews were conducted by a Cabinet-appointed committee

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and by a team from the Caribbean Centre for Development Administration (CARICAD). The Review Committees however, failed to identify the overriding drawback to successful implementation. It overlooked the critical issue that the attempted PMDS was impeded by an existing public service culture characterised by political interference and decision-making based on personal, familial and political patronage. This impediment resulted in distrust for and lack of confidence in the system, which in turn led to a lack of interest in PMDS. Instead, it appeared that public servants were more interested in the outcome of the Reclassification Exercise (Salary Revision) that was and still is awaiting Cabinet’s decision. The continuation of the status quo as it relates to employee’s performance and welfare development suggests that there is little intention for genuine and radical change both by the policy makers and administrators. It is one factor that Strehl had noted and had accordingly cautioned when he observed: that the administrative system would often be ignored in the interest of political expediency.16 In a similar vein, the current practices that permeates the public service employment and management systems in SVG suggests that the goals and objectives of PSR may be sacrificed in order to achieve political aims17. Among the recommendations made by the two independent evaluations, was the need to build capacity at the PSRU. The evaluation reports call for serious consideration to be given to building the capacity of the PSRU if the ongoing PSR initiatives are to be effective and successful. The PSRU is presently functioning with only three officers (a reduction from a total of five)-the Acting Director of PSR, an administrative assistant and a typist. In 2006, a decision was taken at the ministerial level to allow the PSRU to reactivate the implementation of the PMDS in three departments, despite the lack of adequate manpower and resources at the PSRU and the absence of the institutional requirements. A further check on the state of readiness for a possible resumption reveals that with the exception of the recommendation to pilot the PMDS in just a couple of departments, none of the other recommendations has been given attention. 16

Strehl, Franz: Implementation of a new performance appraisal system, International Review of Administrative Science, Vol. 59 (1993), pp. 88-89 17 By political aims is meant the objectives and desires of a political party to satisfy the needs of its supporters through, among other things, recruitment and appointment, and the provisions of jobs and financial assistance to pursue academic training.

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Conclusion The demise of PSR is usually attributed to the usual suspect factors of inadequate funding, insufficient capacities, and insufficient time. These factors are not in and of themselves without merit. However, the corresponding corrective measures often illustrate the narrow view of those responsible. The problems associated with the implementation of PSR in SVG must be analysed within the context politico-administrative culture. There appears to be a perception among policy makers that PSR can be implemented effectively without any meaningful reference to the welfare of public servants or to the proper management of their performance. Based on the continued approach to managing employees’ performance and welfare development, it can be argued that the implementation of PSR in SVG is unlikely to achieve much success. The underlying challenges faced by current reform initiatives are, to a large extent, a reflection of fundamental institutional and legislative weaknesses. However, the institutionalisation of a clearly defined, objective and transparent system of employee performance management and development – capable of achieving simultaneously the objectives of PSR and political aims – is dependent on the extent to which political power in relation to political appointment is shaped/informed by and through constitutional reform. The policy makers both present and past have long recognised the weaknesses in the present constitution of SVG. In 2002, a Constitutional Review Commission (CRC) was established under the ULP Administration to undertake a series of consultation aimed at addressing the weaknesses of the constitution. The CRC in its Revised Final Report to the House of Assembly on the 28th September 2006 made four significant observations pertaining to the PSC and acknowledged that indeed, the relationship between public administration and politics is alive and well in SVG. These observations are outlined below: 1. The power given by the constitution to the Prime Minister to determine which persons are appointed to the Public Service and Police Service Commissions has aroused deeply felt concerns. Even the Prime Minister has criticised the constitution for giving him too much power in that respect. 2. The Prime Minister directly selects the members of the supposedly independent Public Service and Police Service Commissions. The only real qualification on the enormous power is that the Prime Minister is obliged to “consult” various

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bodies before he submits certain names to the Governor General for formal appointment. 3. The obligation to “consult” is hardly any weakening of the Prime Minister’s power to choose those ‘independent’ persons, since a Prime Minster is not bound to accept the advice of any person whom the constitution requires him/her to ‘consult’. 4. The most vital issue involved in the area of the Public Service is how to achieve and maintain the genuine isolation of public officers from political influence. The method by which the members of the PSC are appointed is therefore an issue of fundamental importance18. Given that the issues pertaining to the appointment of the members of the Commissions are indeed crucial ones the CRC notes the absolute necessity for a genuine independent public service and made the following recommendations: 1. The Chairman of the PSC should be appointed by the Head of State in his/her own deliberate judgment. 2. One member of the PSC should be appointed by the Head of State acting on the advice of NACE19. 3. The other three members of the PSC should be appointed by the head of state acting on the advice of the following persons/organisations in each case: ¾ the Prime Minister ¾ the Minority Leader; and ¾ the organisation representing the majority of public officers20 The call by Vincentians for a more independent PSC for recruitment, appointment, promotion, and discipline of public servants is no doubt well intended. One may question the extent to which such ‘independence’ jeopardises the responsibility of the Government of the day to act expeditiously in fulfilling its mandate. However, the SVG Public Service Human Resource Management (HRM) philosophy statement calls for an equitable and fair treatment in the recruitment and selection process for appointment, transfer, promotion and training and development; one that is free from political interference. In addition, the lack of transparency with regard to the appointment to certain positions, such as permanent 18

Revised Final Report 2006 of the Constitutional Review Commission (CRC), pp. 69-70 19 The National Advisory Council of Elders 20 CRC Revised Final Report 2006, p. 71

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secretaries and some heads of department, can and does undermine the trust public servants have and may come to have in the system. This writer supports the view as quoted in Armstrong (1997)21 “that effective reform implementation requires a learning capacity that is a heightened ability of a system of government to learn from both its own experience and the experience of others.” One wonders to what extent success in reforms can be achieved in SVG, given the entrenched nature of its political and public service cultures.

References Armstrong, James L. 1997: “Reason and Passion in Public Sector Reform”, A Discussion Paper for the PSC of Canada. Ayeni, Victor. 2003: “Reform in Developing Countries”, Commonwealth Public Administration Reform. Bissessar, Ann Marie. 2001: “Public Sector Management”, GT29D, University of the West Indies. Kaul, Mohan, 2000: “Management Reforms in Government- An Outsider’s Inside View”, CAPAM. Lynch, Thomas & NYLAN, Ronald. 1993: “A Holistic approach to Productivity”; International Review of Administrative Science, Vol 59. Ryan, Selwyn & Brown, Deryck. 1992: “Issues and Problems in Caribbean Public Administration”, St. Augustine, Trinidad: ISER,. Strehl, Franz. 1993: “Implementation of a new performance Appraisal System and the problems of organizational change”; International Review Administrative Science, Vol 59. Gray, Andrew & JENKINS, Bill. 1995: “From public Administration to Public Management: Reassessing A Revolution?” Public Administration, Vol 73 Spring. Revised Final Report of the Constitutional Review Commission, 28th September 2006 Service Commissions Department Newsletters- St Vincent and the Grenadines, April 2001, August 2001, September/October 2002, March/April 2003 Editions. Administrative Reform Programme Newsletter- St.Vincent and the Grenadines, volume 1 number 1, July 1991 UNDP, Public Sector Management Reform in Asia and the PacificSelected Experiences from Seven Countries: Published by the Regional Governance Programme, 2000. 21

Op. cit. Armstrong 1997, p.

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The News Newspaper, St. Vincent and the Grenadines- August 26,2005 Edition Address by Prime Minister Ralph Gonsalves to Public Officers, January 2003. Address to Senior Public Servants by Mr. Arnhim Eustace, Minister of Finance with responsibility for the Public Service, 1998.

CHAPTER FIVE MANAGERIAL AUTONOMY, POLITICAL CONTROL AND NEW PUBLIC MANAGEMENT: THE QUEST FOR A CORPORATE CULTURE AT THE GUYANA REVENUE AUTHORITY’S CUSTOM AND TRADE ADMINISTRATION TALIA CHOY AND MICHAEL E. SCOTT

Abstract The article focuses on the Guyana Revenue Authority (GRA), more specifically the Customs Trade Administration (CTA). The article will first attempt to evaluate the corporatization of the GRA within the context of Kaul’s six strategic areas of NPM. It will explore the establishment, organisation, structure, function, resource capacities and outputs of the GRA. Additionally and substantially, it will define and examine the issues of managerial autonomy and political control within the CTA. To do this, it will draw from cases where similar NPM reforms have been taken up and recount related successes and failures. This comparative approach is used to shed light on the issues examined, which have emerged as a result of unsuitable adoption of NPM reforms. Further it will highlight episodes of autonomy in decision-making as well as political intervention within the CTA and then conclude with an examination of their consequences for the GRA.

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List of Acronyms/Abbreviations ASYCUDA CANU CCTA CIAT CTA GRA IDB IMF NPM OECD PID SOE TRIPS UNCTAD

Automated Systems for Customs Data and Management Customs Anti- Narcotic Unit Commissioner of the Customs and Trade Administrations Inter-American Centre of Tax Administration Customs and Trade Administration Guyana Revenue Authority Inter-American Development Bank International Monetary Fund New Public Management Organisation for Economic Co-operation and Development Permit for Immediate Delivery State Owned Enterprises Total Revenue Integrated Processing System United Nations Convention on Trade and Development

Introduction This paper will focus on the Customs and Trade Administration where the issue of Managerial Autonomy has been tested. In 2003 the Commissioner of the CTA (CCTA), and former head of the Customs AntiNarcotic Unit (CANU) was censured by the then Commissioner-General for practices which, it was alleged, infringed the integrity of the department. This related to a container of goods, which was apparently processed and cleared by the CCTA before its arrival in Guyana’s jurisdiction. The CCTA was livid and proceeded to convene a press conference in retaliation, where he made veiled allegations against Government officials including politicians. To call his bluff, the CCTA was given an ultimatum by the Head of State, the President to “name names or shut up”. The CCTA retracted and made a subsequent media statement, alleging misinterpretation of his previous statement. The final and albeit unexpected result of this instructive episode was that the CommissionerGeneral resigned from his position, a move possibly motivated by political pressure; and the CCTA has remained in his as an obscure figure. Since then a number of customs related activities implicating this department have surfaced making Guyana a veritable international news focus in the drug trafficking trade. Charges of other forms of corruption have also been leveled against the organisation and its key decision makers. These charges and allegations, as postulated by Myint (2000:33) often “play a

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central role in politics,” as we have seen in the previously outlined scenario. The Guyana Revenue Authority, in its mission to increase its revenue collection capacity, improve service quality and efficiency as well as curb corruption, undertook an intensive re-evaluation of its management structure and system. The result of its evaluation led to the implementation of several NPM-style reforms. More specifically, the Authority embarked on a rigorous corporatisation programme, as part of an overall commitment to modernize and strengthen its operations and capacity. One of the fundamental features of this programme relates to a diminished role of the Authority’s subject ministry, the Ministry of Finance, in its day-today management affairs. Consequently, this diminished role should be matched by an increase in managerial control and autonomy of the GRA. But, as we have deciphered from the opening case, concerns have emerged regarding limits to the exercise of managerial autonomy, particularly in an environment seemingly subject to political motives and corruption. The objective of this paper is to examine the extent to which managers within the CTA exercise “managerial autonomy”. This examination will be extended to an investigation of the factors that may limit or interfere with the exercise of managerial autonomy and control. In this light, the question of corruption will inevitably arise and will be appropriately addressed although not exclusively by the researchers. A brief overview of the Guyana Revenue Authority will be done, followed by a description and evaluation of the main structural and administrative changes undergone by the Authority as part of its corporatisation/modernization move. These will be briefly discussed within the context of Kaul’s principles of the New Public Management. The final sections will entail a discussion of the results of interviews conducted with employees at CTA on issues related to the exercise of managerial autonomy, and compared with findings from the literature. The paper draws heavily on available literature on the issues explored therein, as well as primary research undertaken by the authors. The findings emerging from interviews were helpful in clarifying and substantiating the work of other researchers, as well as filling informational gaps in the literature examined.

The Guyana Revenue Authority: Background and Reformation Process The Authority had a very inauspicious beginning. Although the then President gave his assent to the Revenue Authority Act #13 of 1996 on

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October 3, 1996 the Authority only became operational on January 27, 2000 by order #4 of 2000 by the Minister in the Office of the President with the responsibility for Finance. The Guyana Revenue Authority (GRA) is a semi-autonomous agency and has as its business constituents the former Inland Revenue Department, and Customs and Excise Department. These are both government Departments and have been re-designated Internal Revenue, and Customs and Trade Administration, respectively. They are supported by internal service Divisions viz. Human and Financial Resources; Management Services; Legal Services; Internal Audit; Audit and Verification; Planning, Communication and Operational Procedures; and Information Technology. Prior to the establishment of the Authority in 2000, the Inland Revenue Department was responsible for the administration of such Acts as the Income Tax, Property Tax, Corporation Tax, and Licenses. This Department also occasionally performed supporting functions related to Companies Administration, Field and Audit and Investigation, Research and Training (GRA 2005). The Customs and Excise Department had the mandate to administer, in particular, the Customs Act and Regulations and the Consumption Tax Act. Other important functions included leading customs and excise operations; and undertaking such roles as: enforcement, excise and patrol, inspections and audits (GRA 2005). Additionally, the subject ministry had significant control over budget execution. Recruitment and staffing functions were performed by the Public Service Ministry and the Ministry of Finance, which resulted in delays that limited the agency’s human resource management systems. The move to corporatise the Authority signaled an important commitment on the part of the Government to meet those requirements imposed by the donor community (specifically the International Monetary Fund). This move was further grounded in the recounted successes associated with the implementation of similar reforms by other tax administrations of Developing countries. Drawing from those success stories, it was anticipated that a more modern revenue collection agency, within the context of Guyana, would yield such benefits as: improved service to customers, through efficient administration of relevant Tax and Customs Laws and Regulations; image building through the promotion and safe guard of the core values of integrity, professionalism, respect and impartiality; reduced administrative burden on the business sector, thereby facilitating trade and economic growth for Guyana; and importantly, increased revenue generation capacity (GRA 2005). Pressures to improve the performance of its revenue administration

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function, and thereby realize predicted benefits, prompted the Government’s decision to contract Consultants from the Inter-American Centre of Tax Administrations (CIAT), which was facilitated under a World Bank Project loan. The CIAT consultants were contracted to carry out a study and tender a report for the establishment of the Authority in Guyana. The consultants prepared a “Design and Implementation Plan,” for the Authority, which featured several proposed changes to its original organisational structure. One incremental change that immediately succeeded the formal establishment of the Authority represents the renaming of the two Departments: Internal Revenue Department and Customs and Trade Administration. Once the Authority had been established, several other changes were introduced and would continue to be implemented over the years. The former Commissioner-General, pronounced on some of the advantages in becoming a Revenue Authority, namely: 1. having a single revenue authority will simplify tax administration through the grouping of like functions, thus eliminating overlap and duplication of services and functions between the two departments; 2. freeing resources that can be better directed towards improvements in program administration and infrastructure needed in both Departments, and; 3. tailoring human resource and administrative frameworks to tax and customs needs in order to be more efficient in the administration of the Tax and Customs Legislation, thus developing a more business-like approach to providing improved service to the public through a better-coordinated organisation structure. Future changes that were to take place would follow the same rationale. A brief examination of some of these other proposed (and actual) changes would be done in the subsequent section. Today, as a semi-autonomous body, the GRA has the following as its principal objectives: 1. to provide a better service to the public 2. increase the efficiency and effectiveness of the tax and customs administration 3. to simplify the administrative burden on the business sector in complying with tax and customs legislation 4. to safeguard the integrity, professionalism and impartiality of Tax and Customs Administration (i.e. through clearer definition of mandates, roles, responsibilities and segregation of duties)

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(Chapter 79:04, Revenue Authority Act 1996).

Functions of the GRA The principal functions of the GRA are as follows: 1. to assess, charge, levy and collect all revenue due to the government under such laws as the Minister may, by order specify 2. to ensure that Guyana’s best interests are adequately safeguarded in the negotiation of international taxation agreements 3. to promote compliance with the written laws relating to revenue and create in the society full awareness of the obligations and rights of revenue payers 4. to advise the Minister on all matters relating to revenue 5. to perform such other functions in relation to revenue as the Minister may direct (Chapter 79:04, Revenue Authority Act 1996). Additionally for the purpose of the discharge of its functions under the Revenue Authority Act, the Authority may, subject to the provisions of the Act, do anything and enter into any transaction, which is necessary to ensure the proper performance of its functions, namely: 1. develop and maintain systems, whether by computer or other means, for the collection, storage and retrieval of information relevant to the functions of the Authority 2. establish and maintain legal services including employment of attorneys-at-law for prosecuting persons charged with offences against written laws relating to revenue or for any purpose connected with assessment and collection of revenue 3. design and conduct training programmes for revenue officers so as to upgrade their knowledge and skills 4. establish and maintain public relation services 5. establish and implement a written code of conduct for all employees of the Authority, and 6. make arrangements for the inspection and internal audit of the operations and accounts of the Authority (Chapter 79:04, Revenue Authority Act 1996).

Management of the Guyana Revenue Authority Being a semi-autonomous agency means that the GRA has substantial independence in managing its finances. Once approved the agency can

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execute its budget, subject only to the intervention of the Auditor General (GRA 2005:3). GRA, through its Board of Governors also has authority over recruitment and dismissal of staff at certain management levels. The Minister (of Finance) is responsible for appointing the members of the Governing Board and can occasionally give general directives to it with regards to carrying out its functions under the Act. However, the Act dictates that only the Board can give effect to the directives (Revenue Authority Act 1996). The Board of Governors, which consists of the Chairman, the Commissioner General, the Governor of the Bank of Guyana, the Director of the Office of Budget, Ministry of Finance and two other members; represents the Authority’s executive management body and has the responsibility to: 1. approve and review the policy of the Authority; 2. monitor the performance of the Authority and; 3. discipline and control all members of staff appointed by the Authority, as provided by the Revenue Authority Act 1996. As the Chief Executive of the Authority, the Commissioner-General, is responsible for: 1. the day to day operations of the Authority 2. the management of funds, property and affairs of the Authority, and 3. the administration, organisation and control of the staff of the Authority The CTA is one of two departments of the GRA. The CTA is managed by a Commissioner, who reports to the Commissioner General.

Methodology The paper relies on an examination of available studies on the merits and demerits of the new public management (NPM) and its related reforms. The authors specifically examined literature recounting cases of reform of other revenue and tax administrations of developing countries. It also relies on findings from structured and unstructured interviews conducted with employees of CTA. The initial intent, which was to limit the selection of interviewees to those persons who occupied senior positions within the CTA had to be abandoned, as most of them, when approached either declined to be interviewed or ignored the researcher’s request for an interview. The respondents included seven employees of CTA. Of this seven, two supervisors were interviewed face to face using a structured interview schedule and three operational employees, based on their personal preference, were given a copy of the schedule to complete

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independently. It should be noted that these three respondents were selected by a liaison person at CTA, which in effect limited the researchers’ interaction with them. Unstructured interviews were conducted with two senior managers at CTA. These interviews were conducted to clarify issues and questions that emerged from the structured interviews and could not be adequately addressed by respondents; as well as to ensure that the information shared by the interviewees was reliable. Organisational reports and legislative documents were also used to support key findings and assumptions. The principal instrument: the interview schedule consisted of 18 items (see appendix I). Respondents were asked to define managerial autonomy within the context of their departments and the organisation as a whole. They were further asked to state their views on how such autonomy is exercised by their managers. Questions were also constructed to test respondents’ perceptions of and knowledge about their agency’s management and operations systems, its relationship with its subject ministry and the private sector and its strategic objectives. Responses were descriptively analyzed. It should be emphasized that findings from the interviews represent the perceptions of the respondents about the exercise of autonomy by their managers. The researchers acknowledge the value of garnering the views of these senior managers as well, in order to enrich the analysis, but several situational and time constraints challenged related effort. A majority of the respondents has worked with the agency for over 10 years, which allowed them to pronounce “authoritatively” on some of the issues they were questioned on. In fact, the views of the respondents did shed light on some of the core issues explored and examined in the paper. Copies of the GRA’s organisational charts (before its establishment as the Authority in 2000 and current) are included in the appendix to support the discussion (see appendix II). A table depicting the characteristics of the sample population is also included in this section (appendix III).

Limitations The research is considerably undermined by the lack of opportunity to access the valuable views of top and middle level managers at CTA. Further, face to face interviews could not be done with three of the respondents, who were not disposed to this arrangement; which prevented the researcher from probing, clarifying and fleshing out some key issues communicated by these interviewees. To augment this unfavourable situation, these respondents were selected by the point person at CTA,

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with no involvement by the researcher. These respondents did not occupy managerial positions and as such could/did not appropriately address a number of the questions on the interview schedule. This situation therefore precluded them from sharing valid testaments of personal exercise of managerial autonomy. However their perceptions/views of their superiors’ actions/decisions in response to certain management situations were valuable in determining and assessing the extent to which managerial autonomy is exercised within the agency. The foregoing is quite instructive and can be considered as illustrative of the apprehensions and survival syndrome spawned by a fair degree of political control/diktat.

Definition of terms In the context of the NPM, the following terms are defined: Corporatisation: refers to the process whereby semi-autonomous state owned enterprises are established from governmental agencies that produce goods and services with commercial value. Corporatisation is an NPM-type initiative and practice which gained prominence in New Zealand. The motivation behind the country’s corporatisation programme was linked to the sheer scale of government involvement and ownership during the 1980s (Shaw 1999). By the beginning of the 1990s, large portions of the country’s public sector had been corporatised. Corporatisation seems best suited for governmental agencies that “produce goods and services with commercial value,” which once corporatised are referred to as “State Owned Enterprises (SOE) (Shaw). Shaw’s research indicates that there are seven objectives of the corporatisation process, five of which (based on their perceived relevance to the paper) are paraphrased here: 1. SOEs are set up on an individual basis and managed by a board modeled after the private sector. Such boards have the responsibility to make decisions related to major investments and recruitment. While the board is accountable to the Minister on matters pertaining to its performance, their involvement is quite limited 2. Managers of SOEs should have certain fundamental objectives, these are to maximize their agency’s commercial performance and run a successful business enterprise. This is considered imperative to ensuring accountability and preventing inconsistent political policies to interfere with operations 3. Managers are responsible for using inputs, pricing and marketing their agencies’ services and goods within the performance

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guidelines imposed by their subject ministry Management performance should be closely and consistently monitored by the subject ministry, the treasury and the private sector 5. A system of managerial rewards and sanctions should be in place to provide incentives for performance Corporate culture: refers to a collection of beliefs, attitudes, values, traditions and expectations shared and transmitted by members of an organisation over time. An organisation’s “corporate culture” is intertwined with its vision, mission, goals, as well as its operating and external environments. ¾ An organisation’s inner values (ethical standards.), beliefs, rituals, operating style and socio-political atmosphere including gender issues, etc (power issues). ¾ The corporate culture adapted can be an important contributor or obstacle to successful strategy execution. ¾ Corporate Cultures are business oriented, flexible and adaptable cultures. Corruption: within the context of the paper, corruption is defined as the use of public office and related authority for private gain. A corrupt act can be extended to the use of one’s autonomy to force actions that are (sometimes) inconsistent with organisational protocol, which favours a particular person or group over another (nepotism, cronyism). Other examples of corrupt behaviour include fraud, embezzlement, appropriation of public assets and property for private use and influence peddling (Myint 2000). Corruption can be categorised broadly into two types: (1) petty corruption (which is sometimes referred to as routine corruption, due to the frequency with which it takes place; or survival corruption, which refers to a form of corruption pursued by underpaid junior and middle level (customs) officers; and (2) grand corruption alternatively involves more senior officials and significant sums of money, and may occur when tax policies or amendments are made (Fjeldstad 2005). In broad terms, corrupt acts are considered unethical and unlawful and approaches to curbing corruption may be integrity-based or prohibitive in nature. Managerial autonomy: refers to the exercise of control or influence over management decisions and matters. Shaw comments on the evasive nature of “autonomy” and the fact that its usage varies considerably Shaw (1999). It is expected that once a public agency is corporatised there is a separation between the functions of the subject ministry and the governing board of that “public corporation.” Against this back drop, the minister should not be involved in the day to day affairs of the public corporation. 4.

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In other words, the administration and management of the corporatised body is “seen as the exclusive concern of the boards” and policy matters therein, the concern of the subject ministry (Giddings 1975). Clearly there is an inextricable link between managerial autonomy and corporatisation. The following indicators of autonomization have been extrapolated from Shaw’s findings: 1. De-politicization of managerial decision making- this can be achieved by distancing the public agency from government and providing appropriate mechanisms to facilitate decision making based on facts, rather than interest group pressure (particularly political) 2. Establishment of a Board- Board members are so appointed on fixed term contracts. Typically, such boards are managed like their private sector counterparts. 3. Facilitation of improved consumer responsiveness through customer representation on the Board 4. Installation of mechanisms to avoid red tape (particularly as it relates to procurement and civil service regulations) and create a more flexible organisation Importantly, Shaw also notes that autonomization policies aim to make the agency in question financially self-sustaining. While any worthwhile discussion of the granting and exercise of managerial autonomy should extend to a contextual evaluation of all these factors, the researchers will limit the discussion to the first, as this represents a primary indicator of managerial autonomy. Political control: is defined for the purpose of this paper as undue intervention by the subject ministry into the management affairs of a SOE.

The New Public Management Paradigm and Reform of the GRA: a Rationale for Corporatisation The researcher will focus on Kaul’s six principles in an attempt to evaluate the coporatisation initiative as adopted by the GRA. This evaluation will partly rely on findings emerging from recent research undertaken on the take up of similar NPM reforms by Revenue Authorities in developing countries, in an effort to highlight some of the associated successes, failures and challenges. The NPM paradigm first dominated the thinking in public service reform in a number of OECD countries viz. Australia, Canada, New Zealand and the UK. Now these principles and practices have been and are being transposed, transferred and translated to developing countries. The

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defining features of the NPM model have been summarised by Martin Minogue as its entrepreneurial dynamic, its reinstatement of the market as a potentially more proficient provider of public services than the state, and its proclaimed intention to transform managerial behaviour (Sutton 2002 (Sept., 7).

Its implementation, according to Kaul (1995: 25-26) would necessitate the following: y Redefining the role and functions of Government as a catalytic effective and facilitating state. This has three indices–core areas for government, a focus on results and distinguishing between strategic objectives vis-à-vis operational processes. y redefining the public as customers/service users. This includes benchmarks in citizen’s charters, strengthening regulatory and oversight agencies and reorientation of public service culture. y establishing strategic units. This includes policy management units to coordinate ministries, agencies and departments, autonomous executive agencies, enhanced authority/autonomy for departmental managers and chief executives y realigning public and private sector to promote competition in the public service. This includes market-testing for contracting out, contracting out and public-private-NGO partnerships y institutionalising strategic planning and control systems. This includes output-oriented systems for budgets, accrual accounting and capital charging y harnessing information technology to promote efficiency and effectiveness . The effect of this would be according to Minogue (cited in Kaul 1995) “to transform the traditional public administration into a new species of public management” characterized by: 1. a separation of strategic policy from operational management; 2. a concern with results rather than process and procedure; 3. an orientation to the needs of citizens rather than the interests of the organisation or bureaucrats; 4. a withdrawal from direct service provision in favour of a steering or enabling role; 5. a changed entrepreneurial management culture. Several modes of thought have been presented on the features of the NPM. But as Hood (1991) acknowledges, many aspects of this “doctrine” overlap. In practice, it is a rarity that all of these elements are equally

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present with respect to any given reform initiative. Further, many countries have diverse motives for implementing related reforms, which will directly influence their choice and the nature of such reforms. For developing countries, such motives are often intertwined with the requirements attached to granting financial aid, as has been the case with GRA. The other driving motives relate efficiency gains (stress on results) and service quality improvements, but the rationale behind adopting NPM reforms may also extend to fighting corruption. Along this line, Transparency International has advised governments of the need to concentrate their anti-corruption efforts on areas such as revenue collection and administration or law enforcement (cited in Polidano 1999). One anti-corruption mechanism entails setting up agencies that are charged with these functions, as autonomously managed bodies free from unscrupulous political intervention (Pope 1995, as cited in Polidano 1999). The GRA, like its Ghanaian and Tanzanian counterparts instituted other anti-corruption mechanisms, including a customer (public) complaints capability (Moene 1999; de Merode and Thomas 1994:166, as cited in Polidano 1999).1 Notably, the establishment of the Guyana Revenue Authority and other revenue authorities in Africa reflect a similar rationale for instituting reforms, and while it may be too early to pronounce with confidence that reforms have been successful, it can be said that with the establishment of the Authority several changes occurred. For example, its transformation into a semi autonomous agency “meant” that it was granted a great deal of authority and flexibility to manage its own affairs, as well as an opportunity to rid itself of “corrupt” staff (note that in some instances staff was viewed with suspicion and distrust by the political authorities). To supplement its autonomous status, the Authority’s corporatised status, should overtime result in the following organisational changes (GRA publication 2005):2 1. Creation of the new position of Deputy Commissioner General- this position was created under an amendment of the Guyana Revenue Act (Act #16 of 2003) and arose from the need to lend support to Commissioner General in the day-to-day management of the organisation. The Deputy CG had the initial responsibility of overlooking the functioning of the newly established Remission Unit; Planning, Communication and Operational Procedures and Field 1

Based on personal communications with a CTA representative; May 9 2006 These changes were based on recommendations in the Tax Reform Plan, on initiatives taken to modernize and strengthen the organisation within the context of new legislation. 2

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Audit. Hiring of twelve qualified accountants to aid the setting up a new Consumption and Tax Audit Unit. The establishment of this unit was duly approved by the Governing Board and became part of the expanded Consumption Tax Section. The accountants were hired to conduct audits into the tax accounts of manufacturers, monitor their activities to ensure accurate returns submission, and investigate unregistered manufacturers. 3. The establishment of a new Internal Affairs Division to investigate allegations of malpractice involving GRA staff. The setting up of this Division was viewed as an operational and moral imperative towards enhancing the Authority’s image and integrity. 4. Integration of audit operations across GRA to establish an Audit and Verification Division. The move to integrate departments that performed audit functions was taken to facilitate improved utilization of human and capital resources as well as reduce functional overlaps. 5. The establishment of a separate Information Technology Division removed from the Management Services Division. The new Division was created to allow for better coordination of IT activities, improved customer services, replacement of manual systems and procedures with computerized systems and enhanced central decision making capacity. 6. Merging of two departments: Human Resources Division and Administrative Section (formerly under the Management Services Division) to create an amalgamated Human and Financial Resources Division. The net effect of creating, merging and delinking various divisions was that the Management Services Division became irrelevant and in 2005 the Board approved its removal. A few other similar structural changes were proposed and slated for 2005. In sum, these changes were concerned with the merging of two divisions (Arrears Collection and Revenue Protection, and Berbice Anti-Smuggling Squad) into a single new division- Collections, Compliance and Enforcement. As with the other proposed and ongoing changes, the expected benefits of these more recent changes include: improved integration, enhanced knowledge and skills on the part of customs officers, reduced functional duplication and overlaps, improved coordination afforded by grouping complimentary functions of enforcement and other forms of revenue protection, and improved compliance through a reduction of tax avoidance and evasion methods. These recent changes were proposed to meet the Inter-American Development Bank (IDB) conditions which required the Authority to rationalize its organisational 2.

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structure. The Authority secured an IDB grant in the sum of $US 7.6M to lend institutional support for Tax Reform Action Plan measures. The primary areas identified under the funding include improvement of the current technological capacity of the Authority and some of the structural changes already outlined.

Managerial Autonomy: NPM Principles and the CTA Experience Against Kaul’s NPM principles, we can extrapolate that the Authority’s autonomous status has been marked by a redefinition of its relationship with its subject Ministry. The outlined changes relate to a strong pursuit of a corporate culture built on greater efficiency through reduced duplication of effort and optimization of available human and capital resources. On the question of customer focus, according to one senior CTA official and from GRA reports, the Authority has undertaken customer-centred initiatives, geared towards improving its service to customers. These include some of the structural and regulatory changes already alluded to earlier, such as the establishment of the Information Technology Division and the installation of computerized customs management systems (ASYCUDA), which allow the Authority greater flexibility in generating, organizing and storing customer and trade information that can be used to make better management and customer-related decisions.3 The Internal Affairs Division also seeks to protect customers’ rights and privileges by investigating allegations of unprofessional conduct made by customers against staff members. In accordance with Kaul’s principle on public/private synergy and partnership, the GRA currently contracts security and janitorial service organisations, as well as private consultants to maintain and install its computer systems. Corporatisation has allowed the GRA to “shed its poor performers,” and alternatively contract qualified persons to fill specialist posts (computer maintenance and programming, and accounting); which compare to findings related by Polidano (1999), writing in the context of Revenue Authorities of Ghana, Malawi, Tanzania, Uganda and Rwanda. Like the Revenue Authorities in Ghana and Uganda, the GRA managed to increase its tax income by G$0.75 B 3

ASYCUDA software is developed in Geneva by UNCTAD and takes into account the International Standardisation Organisation- developed codes and standards. According to a CTA senior officer, the CTA is currently phasing out this system in favour of the installation TRIPS (Total Revenue Integrated Processing System). The Crown Agents were contracted by the GRA to manage its installation.

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between 2002 and 20034 (see table 1). There seems to have been marginal changes in the tax structure during this time, therefore the growth in revenue could have been attributed to an improved tax collection capacity on the part of the Authority. Other discernible strengths that came out from the interviews include the existence of active mechanisms for measuring the Authority’s performance and thriving partnerships with other public sector agencies, and private sector organisations. Table 1. Budgeted and Actual Collections ($Billions)

Internal Revenue

Customs and Tax Administration Total

2000

2001

2002

Actual

Budget

Actual

Variance

Actual

Budget

Variance

18.9

19.6

19.7

0.1

22.1

22.3

0.1

19.1

19.9

18.1

(1.5)

18.7

20.2

(1.05)

38.0

39.5

37.8

(0.95)

40.8

42.5

(0.95)

Source: GRA’s Annual Report and Statement of Accounts for the year ended 2001 and 2003 However, corporatisation has had mixed results, as there are a few factors which have considerably limited the potential success of related reforms. One such factor is corruption. The GRA’s current anti corruption and control measures seem inadequate, which can aggravate the effects and the incidence of corruption, as will be examined later. Moreover, 4

More recent Annual Financial Reports for GRA could not be accessed. The 2003 report seems to be the most recent. However, personal communication with a CTA representative indicated that more recent collection figures represent a similar trend. The official did note that corporation tax collections for 2006 are expected to be low, given the number of local investors who have departed due to the escalating crime situation in Guyana.

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notwithstanding the increases in tax income, actual collections still show a negative variance from budgeted collection figures. The failure to meet performance standards in this regard is attributed to the continued problems of revenue leakage and loss, which have been facilitated by an informal sector, and the authority’s inability to trace tax evaders (GRA Annual Report 2003, 2001). The achievement rate of the former Examination and Investigation Division (now Audit and Verification Division) has not been very encouraging either. In 2003, only 36% of the companies suspected of tax evasion and targeted for desk examination were fully investigated and related tax liabilities settled. Similarly, 13.8% of the individuals targeted for desk examination were accordingly investigated; only 53.9% of individuals targeted for special investigation were duly investigated (GRA 2003). What is also apparent from GRA reports and findings from the interviews, which are summarized in the next section, is that managerial changes, which were implied from the reforms, were slow to take place and in some cases were outright resisted by staff members and managers. This resistance was linked to their lack of skills and experience to take on the increased responsibility (GRA 2005). This has militated against the level of autonomy thus leading to political intervention or politicisation, patronage and increasing centralisation of authority. To address this potentially debilitating weakness, the GRA undertook several capacity building initiatives, which included training and development of staff members in their various specialty areas, but there is still more that needs to be done. A 2004 review of the GRA revealed a number of factors that has served to constrain the performance of the Authority. These factors include: limited technical and managerial capacity, low staff morale, the lack of management teamwork, delayed adoption of structural changes, inadequate utilization/poor allocation of human resources, inadequate supervision, transparency issues, a continuing organisational culture that remains strong and distinct, weak leadership practices and values, and inadequate remuneration structures that contribute to a “work ethic that does not exhibit excellence and accountability.” Lack of funding also represents a fundamental constraint that undermines the success of its corporatisation effort. These constraints are not peculiar to GRA. Polidano (1999) concurs that in many cases, reforms which intend to introduce results-oriented management is very hard to implement, and may require “radical changes to structures of accountability and ultimately the very culture of government.” In fact, Polidano argues low pay structures can seriously limit administrative capacity, as in the case of Uganda, which

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has failed to install a realistic minimum wage, even after many years of reform. Experience has shown that the success of reforms is often hinged on the availability of funding from government or donor organisations; which brings to bear a final, but crucial issue- the role of donors and the apparent aid dependence by the Government of Guyana. Donors sometimes push their ideas of reform and cause Government to buy into them, in order to secure funding, rather than adequately considering the feasibility of such reforms (Polidano 2001). When this “coercive transfer” occurs, the likelihood of success is significantly challenged (Bissessar 2002). The next section will look at some of these issues in greater detail, and from the perspective of employees at the CTA.

Report on Findings from the Interviews5 It should be noted that only four of the seven respondents, disclosed the positions they held in the organisation.6 Personal communications with a middle level manager indicated that the unwillingness to disclose related information by some of the respondents was possibly sourced to their fear of reprisal from top management. Two other respondents who were directly interviewed reiterated this view. Interestingly, very few of the persons who occupied top managerial positions at CTA were desirous of being interviewed. In fact none of them were interested in a face-to-face meeting with the researcher. Even those persons who were interviewed seemed disinclined to respond to some of the interviewer’s questions and most of them preferred not to relate directly with the interviewer. Additionally, some reports had to be first reviewed for uncomplimentary content prior to being submitted to the researcher. From these accounts, it would seem that this organisation is one that is built on a closed and restraining culture. The only top manager interviewed refuted this contention when posed by the researcher, expressing work related time constraints as an alternative reason accounting for the apparent unwillingness of some top and middle level managers to be interviewed. On the question of managerial autonomy, only one respondent felt that the exercise of such was limited, particularly at the supervisory level. 5

See appendix III for reference table on sample population demographics. The analysis of the findings is done in the next section. 6 Two are supervisors and the other occupies a senior clerical post. The other interviewees are operational employees. Both persons with whom unstructured interviews were conducted did disclose their positions, but the information will not be cited in the research, in order to ensure the respondents’ anonymity.

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According to this respondent, most financial and staffing decisions are subject to the intervention of top management (the Commissioner General and the Governing Board) and as such are predominantly centralized. The respondent did concede that authority is granted to make “on the spot” decisions that have to be made in the field, provided that organisational protocol is complied with. Such decisions typically relate to delegating jobs to operational employees, leading raid exercises and the ceasing of questionable goods. There was a consensus among the other interviewees that managerial autonomy was prevalent in the agency. However, based on the responses, it appeared that at least three of the participants were unclear about what practices constitute the exercise of managerial autonomy. Incidentally, these respondents did not occupy managerial positions, which effectively precluded them from responding to some of the questions. As such these respondents were unable to define managerial autonomy within the context of their specific positions and departments. The other three respondents who occupied more senior managerial and supervisory positions affirmed that the transferral of authority from executive management to lower managerial levels was essential for the making of “spontaneous decisions (which) are made regularly when dealing with clients and becomes necessary when addressing and undertaking trade and commerce related issues and transactions.” On the other hand, according to respondents, the effective use of this authority and power is dependent on “tough and capable leadership.” Further, while some middle managers have autonomy in principle, they are occasionally reluctant to exercise it. Their reluctance, according to three key respondents, is linked to the expected consequences of making a bad decision, which include the obvious risk of reprisal and possible victimization from colleagues. The latter consequence seems more probable in instances where taking a decision will find unintentional favour with an individual or group and disfavour with another individual or group. Such situations seem particularly common when making human resources management decisions related to job design, employee placement, delegation and discipline.7 In providing instances of the exercise of managerial autonomy, four respondents shared that managerial discretion is exercised when making decisions related to: ¾ Departmental restructuring: that is assigning responsibility/ tasks to departmental members (includes specifying reporting relationships) and job design (includes delegating), developing 7

As per interview with a key respondent at CTA, date of the interview: May 10 2006.

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departmental goals and performance targets Human resources management issues and functions: appraising staff performance, determining employee development and training needs, resolving conflict and taking/recommending disciplinary action When asked to specify instances where there was an interference with or violation of managerial autonomy, two respondents with whom face to face interviews were conducted, indicated that some of the same decisions that they were authorized to take were occasionally “overridden by their superiors.” For example, recalled one respondent, the Commissioner General may overrule a supervisor’s recommendation to impose a fine (even when such a recommendation is supported by standard procedures, rules and penalties). The other respondent shared that his immediate superior without the consent and knowledge of the Commissioner General makes “questionable staff assignment and placement decisions”. Such decisions often supersede a “sound” recommendation made by a supervisor. The two respondents concurred that the violation of or interference with the exercise of managerial autonomy could have dire consequences on employees’ job satisfaction and general morale. Nonsupport from executives and other top managers on decisions taken by middle and lower level managers is perceived by the latter as potentially demoralizing. This non-support demonstrates a lack of confidence, on the part of top managers in their subordinates’ abilities and competence, and reflects an authoritarian leadership style. The expressed disregard by top management for decisions taken by subordinate managers translates to a form of intervention in the exercise of autonomy, and can create a strain on professional relationships and possibly lend to the emergence of disruptive organisational conflict.8 Another morale issue appears, if there is an observable personal or ulterior motive behind a particular decision taken by top management, which effectively overrides a less contentious decision made by a subordinate manager. It can be concluded that by interfering with the legitimate exercise of managerial autonomy and misusing one’s authority and power for personal gain (which qualifies as a violation of one’s managerial autonomy), top management contributes to a perverse organisational culture: that is, one built on distrust, misplaced loyalty and corruption. Two positive impacts associated with the exercise of managerial autonomy that were cited include: service quality and efficiency gains, ¾

8

This view was expressed by two interviewees, date of the interviews: May 10 2006

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which are afforded if certain time-limited decisions are not subjected to bureaucratic red-tape; but are alternatively made faster by one or two persons, trusted with the competence and granted the requisite authority to make such decisions. There was general concurrence by respondents that granting of managerial autonomy is essential to the Authority’s efficiency and effectiveness, for two reasons: it allows staff the opportunity to be more involved in making decisions related to the Authority’s day to day management and faster response times to external and internal issues/problems. On the question of performance monitoring and assessment of the Agency, respondents suggested the following mechanisms for measuring performance: y Audits (internal and independent, state led audits) y Formal staff appraisals y Attendance reports and time sheets y Direct complaints procedures (complaints desk for customers) y Reports on actual tax revenue collection figures (as against target figures) y Production reports y Oil desk reports y Permit for Immediate Delivery (PID) reports In describing the Agency’s functional relationships with its subject Ministry- the Ministry of Finance, three respondents indicated that there was a general “dependence” by the Agency on the Ministry for effectively communicating changes in the regulatory framework and other Agency relevant Cabinet rulings, which “take precedence over decisions taken by Management.” In this way, the Subject Ministry can fundamentally affect the Agency’s operations and budget. However, a participatory approach is favoured when making decisions involving regulatory changes. The Agency also depends on its alliances with the Ministry of Trade, the Guyana Bureau of Statistics and the Guyana National Bureau of Standards in order to effectively execute its mandate, particularly when addressing issues related to regulatory requirements on restricted goods and the enforcement of export and import licenses (which are typically issued by the Ministry of Trade). There is little debate among respondents regarding the nature of the relationship between CTA and its private sector counterparts. According to four respondents, monthly meetings are held with shipping agents, members of the Private Sector Commission and management associations to update them on regulatory changes and requirements related to tax structures and penalties. Another function of these meetings is to provide a

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forum for members of the private sector to raise objections to contentious rules and regulations, as well as present service quality concerns. Respondents expressed limited satisfaction (although not always explicitly stated) with their Agency’s operations and management systems.9 Five respondents identified the following problems and areas in need of improvement y Transparency and corruption problems, specifically with respect to the Human Resource Management system: decisions related to the selection, placement, promotion and transfer of staff are sometimes based on kinship and other social relationships; without regard for the staff member’s aptitude and qualifications. y Staff morale y Authoritative decision making/poor leadership capacity: executive managers often make decisions unilaterally, or override decisions made by subordinate managers. This approach according to one respondent is favoured because of the presence of weak and incapable leaders who occupy these lower managerial posts. y Control mechanisms y Managerial/supervisory support On the issue of transformation of the GRA, six of the seven respondents indicated that the CTA has benefited and continues to benefit in the following ways: 1. Improved technology-based system for managing tax information 2. Better trained/knowledgeable staff/ more motivated staff 3. Safer and improved working conditions 4. Increases in tax income/collections 5. Improved public image 6. Lower staff turnover 7. More integrated organisational structure Paradoxically, some of the benefits cited were also viewed as constraints to the Authority’s transformation efforts. For example, poor leadership and managerial skills and capacity, low staff morale (particularly among junior customs officials), some functional overlaps and duplication and unreliable information systems were all quoted as important weaknesses. The final two questions sought to ascertain the extent to which 9

Only one respondent conveyed total satisfaction with the Agency’s operation and management systems. Two respondents related that they were “fairly satisfied,” but recognized the need for improvements. The other two were adamant about the need for improvement. All four of them suggested specific areas in need of change.

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respondents delegated tasks/responsibilities to their staff. A majority of the respondents regularly delegated and attributed their willingness to delegate to the perceived advantages of delegation: greater commitment by staff to departmental and agency wide-decisions presents an opportunity to build human resources capacity and skills base and ultimately lend to more competent and skilled employees. One resounding factor that served to prevent some managers from delegating is linked to the perceived inability of staff to effectively undertake the additional responsibility/task.

Diagnosing the Issue of Managerial Autonomy at CTA: Using Shaw’s indicators and the findings from the interviews Against Shaw’s stated objectives we see that managerial autonomy implies that managers have some discretion and control over making certain important decisions, particularly those that involve the interpretation and implementation of rules and regulations; and management of human, financial, technological and capital resources. Indicator 1: De-politicization of managerial decision making: Results show that the Commissioner General of GRA and other top managers, as well as the Governing Board have significant autonomy over budget execution and human resources management decisions. Middle and supervisory level managers can also make decisions pertaining to delegation of duties to their staff, placement of staff and allocating departmental funds; although they seem to face frequent intervention from their superiors on decisions made in this regard. One indication of the exercise of managerial autonomy relates to the making of managerial decisions based on an objective consideration and examination of the facts, rather than political pressures and influence. However, it is difficult to conclude whether decisions made by top managers are grounded in politics, or whether political intervention undermines the Authority’s autonomy. A few respondents have strongly expressed the view that some important decisions are made by management simply to appease political interest groups (and are therefore politicized). There is a strong perception that persons are appointed to key positions because of their political affiliation and to maintain the status quo. While there is no substantive evidence to refute or support this contention, what is more apparent from the interviews and organisational reports is that there exist problems of corruption within the Authority. The issue of autonomy and corruption are linked. It would seem that the Agency’s autonomization has facilitated and fostered corrupt practices

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by those who occupy managerial positions. In other words, one of the consequences associated with the granting of managerial autonomy is corruption. Therefore significant negative impacts that corruption could have on reform efforts cannot be overlooked. Often bureaucrats, politicians and influential taxpayers resist changes to tax administration system in order to retain their control and influence over it (Fjeldstad 2005). Despite the anti-corruption measures instituted by the Authority, this problem remains and serves to seriously negate other reform efforts. Several corruption scandals, including one based on allegations made by the former Commissioner General against the Commissioner of CTA and former head of CANU (2003) fed suspicions of the agency’s deep involvement in illegal drug smuggling and transportation resulted in criticism from the International Community. From all accounts, this issue was superficially addressed and effectively “swept under a rug.”10 Other incidents relate to allegations of granting “questionable” duty free concessions to influential members of society, 11as well as making HR decisions on placement, promotion, transfer and selection based on social relationships and ties rather than merit. What should be noted here is that in almost all instances, these grand corruption scandals involve a member of the organisation who has significant managerial autonomy. The incidence of corruption is also linked to political intervention (which often undermines the exercise of managerial autonomy, or can lend to a violation of managerial autonomy), poor control and tax regulatory structures, and poor employment conditions. Fjeldstad (2002) in his research on the Tanzanian Revenue Authority associated the extent and type of corruption with several factors: political intervention (in the form of discretionary exemptions granted to business and other influential 10

There were no formal reports available at GRA on this incident. The researchers relied on media coverage of the incident and “off the record” conversations with several persons posted at CTA 11 As of September 1st 2003, new tax policy measures that were introduced under the Fiscal Enactment (Amendment Act) (No.2) of 2003 abolished the discretionary powers of the President and the Minister of Finance as it relates to granting exemptions, remission of taxes and duties. The authority over such functions is now placed in the Taxing Acts of the GRA. See GRA’s Annual Report and Statement of Accounts for the year ended 2003, Report of the Governing Board, pg. 10

.

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people); high tax rates and complicated regulations (relatively high tax rates and incoherent supporting regulations can encourage tax payers to bribe customs officials in an effort to cut down their tax burdens); poor pay and working conditions (low pay structures of junior and mid-level customs officers, in particular, compared to private sector salaries can invite petty and survival type corruption); and finally low probability of detection and punishment of corruption (internal auditing and investigative capacities are often inoperative and ineffective, or handicapped by poor skills and competence in auditing and inspection methods, as well as social affiliation between auditors and tax officers). The findings from the interviews corroborate the existence of these factors, as it seems that corrupt behavior by customs officials within the GRA are common and varied (include both grand and petty/survival corrupt acts), and although sometimes obvious remain unchallenged. Allegations of grand corruption may go unchallenged when the perpetrators hold important positions or by virtue of their associations with those in “powerful positions” are protected from scrutiny or formal investigation. Additionally, the absence of a definitive anti-corruption programme, as well as poor internal auditing and investigation capacity serve to perpetuate corrupt acts. A recent review of the Authority (2004) conducted by the Caribbean Regional Technical Assistance Centre revealed the existence of low staff morale, as a result of inadequate conditions of service and pay structures. This could be a primary factor contributing to the incidence of petty corruption at the GRA. On the other hand, respondents did indicate that GRA has been more aggressive in its quest to curb corruption. In fact, in its 2001 report the GRA hinted that there were several dismissals linked to a “more intensified management system to stamp out corruption.” However there seems to be no information available publicizing the nature of the corrupt acts and the parties involved. Investigations are done secretly and the “guilty” or implicated parties are either “forced to resign” or dismissed. The problem of corruption (particularly as a consequence of the “unbridled” exercise of managerial autonomy) brings to bear the need for instituting appropriate and effective accountability and control mechanisms when granting managerial autonomy. In fact the GRA’s regulatory reform process should feature a more prominent commitment to fighting bribery and corruption. The best exemplification of this commitment is to establish an active anti corruption office and develop better accountability mechanisms. Administrators (managers) who are held accountable for their actions will be reluctant to get involved in corrupt practices. Of course discouraging corrupt practices or, more

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specifically the misuse of managerial autonomy for personal gain will depend on several other factors. To this end Klitgaard relates the need for the imposition of stricter penalties and superior control mechanisms that permit a greater probability of being detected in a corrupt undertaking. Still, punishment without tackling the root causes of corruption is not an adequate response to fighting corruption (OECD 2000). The Organisation for Economic Cooperation and Development (OECD) notes that corruption is a transnational problem; therefore any anti corruption strategy adopted by the GRA will invariably require international cooperation and support; as well as the involvement of civil society, and improved legislation.

The Political Dimension From the preceding discussion we see that while the granting and exercise of managerial autonomy is an important feature of most NPM reforms, and is believed to be important for improving managerial effectiveness, specifically as it relates to accountability, responsibility and performance; it can come at a price (Shaw 1999, Polidano 1999 and Van den Berg 2006). In fact findings from the interviews revealed several benefits of autonomy, but also brought to bear some of the concerns with respect to continued unsanctioned political involvement. To this end Van den Berg points out that the decrease in political control and responsibility that accompanies managerial autonomy undermines the democratic feature of decisions. Accordingly, he reasons that the increased discretion of bureaucrats is actually a convenient “smoke screen for politicians to hide behind.” In other words, managerial autonomy and/or corporatisation do not always translate to reduced political intervention; it sometimes facilitates political intervention and protects politicians from the scrutiny of the public by allowing them to conveniently shift the “blame” to the bureaucrats. Moreover weak institutional structures make public sector organisations more prone to political intervention. Cohen and Wheeler (1997, as cited in Polidano) suggest that politicization is one of the factors that demoralize employees and so impair their effectiveness gradually forcing many to leave their job. The results from the interviews corroborate this view, as many of the respondents expressed morale problems in instances where decisions made by management were perceived as having some political or personal motive. Indeed, Polidano argues that the effect of managerial autonomy on performance in public agencies is highly contingent on the degree of centralization. In cases where it has worked, there was an appropriate

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balance of “old fashioned centralization and NPM-style decentralization.” However, he contends that there are no universal solutions and in order to determine what works best will require empirical knowledge about the agency in question, that is its weaknesses (corruption, poor central controls, level of competence of senior and junior management levels, past reforms and related successes/failures etc.) and strengths (leadership, political support, staff quality etc). In other words, the success of any reform, whether such implies the granting of managerial autonomy or not, will depend on local realities.

Conclusion The evidence supports the following conclusions: 1. The GRA has been effectively autonomised, but has still been subject to unsanctioned political intervention. Above all, while some anticipated benefits emerging from the Authority’s transformation have been realized, the existence of various forms of corruption has circumscribed the Authority’s ability to realize real lasting benefits. This brings to bear the need for the Authority to establish a definitive and active anti-corruption office and develop better accountability mechanisms. 2. Other problems impeding its successful transformation relate to the lack of requisite funding (and the related donor dependence by the Government of Guyana), genuine political support, low staff morale, poor leadership capacity and values, limited technical and managerial capacity, resistance to change from staff, poor utilization of available human resources, functional overlaps and redundancies; external factors, such as the existence of a large informal sector that has facilitated tax evasion schemes resulting in a reduced capability of the Authority to meet budgeted collection figures. Paradoxically, some respondents have viewed some of these weaknesses in a more optimistic light. For example better trained/knowledgeable staff/more motivated staff is one of the perceived benefits of the Authority’s corporatisation. Other benefits cited include: improved technology-based system for managing tax information, safer and improved working conditions, increased tax income/collections, improved public image, lower staff turnover, and a more integrated organisational structure 3. One important exemplification of the Authority’s corporate culture relates to increased emphasis on the customer. In fact, it

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123

has undertaken customer centred initiatives geared toward improving its service to customers. For example, there has been a focus on the utilization of computer-based technologies in an effort to better store and manage tax information on their customers; and as such reduce the hassle of fulfilling yearly tax obligations. The Authority has also set up an Internal Affairs Division and Complaints Desk for addressing customers concerns and allegations of malpractice against customs officials. Managerial autonomy can only be effective when there is a legitimate and operational corporate culture. Finally, it should be noted that there are no universal solutions. NPM reforms are not based on a set of immutable characteristics that can be copied wholesale, without appropriately considering their feasibility and suitability within local contexts and realities.

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Bureaucracy and Policy Preferences: A Study in the Attitudes of Federal Executives. Public Administration Review, 36(July/August), 458-469. Meier, Kenneth John, Wrinkle, Robert D., & Polinard, J.L. (forthcoming). Representative Bureaucracy and Distributional Equity: Addressing the Hard Question. Journal of Politics. Mezey, Susan Gluck. (1994). Increasing the Number of Women in Office: Does it Matter? In E. A. Cook, S. Thomas & C. Wilcox (Eds.), The Year of the Woman: Myths and Realities. Boulder CO; San Francisco CA; Oxford UK: Westview Press. Migdal, Joel S. (1974). Why Change? Toward a New Theory of Change Among Individuals in the Process of Modernization. World Politics, 26(2), 189-206. —. (1988). Strong Societies and Weak States: State-Society Relations and State Capabilities in the Third World. Princeton NJ: Princeton University Press. Miller, W., Kerr, B., & Reid, M. (1999). A National Study of GenderBased Occupational Segregation in Municipal Bureaucracies: Persistence of Glass Walls? Public Administration Review, 59(3), 218230. Moore, Jr., Barrington. (1966). Social Origins of Dictatorship and Democracy: Lord and Peasant in the Making of the Modern World: Beacon Press. Mosher, Frederick C. (1968a). Democracy and the Public Service (2nd ed.). New York, NY: Oxford University Press. Mosher, Frederick C. (1968b). Democracy and the Public Services. New York, NY: Oxford University Press. Nachmias, David, & Rosenbloom, David H. (1973). Measuring Bureaucratic Representation and Integration. Public Administration Review, 590-597. Naff, Katherine C. (2001). To Look Like America: Dismantling Barriers for Women and Minorities in Government: Westview Press. Ndegwe, Stephen N. (2002). Decentralization in Africa: A Stocktaking Survey (No. 40). Washington DC: World Bank. Olsen, Kimberly. (2004). Moving Beyond the Washington Consensus: Johns Hopkins School of Advanced International Studies (SAIS). Osborne, David, & Gaebler, Ted. (1993). Reinventing Government: The Five Strategies for Reinventing Government. New York NY: Penguin Group. Polidano, Charles. (1999). The New Public Management in Developing Countries (No. 13). Manchester UK: University of Manchester.

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CHAPTER SIX NEW PUBLIC SECTOR REFORM IN TRINIDAD AND TOBAGO ANN MARIE BISSESSAR

Abstract This paper will examine and evaluate some of the reform measures that were introduced in the public sector during the period 1986–2003 in Trinidad and Tobago. It argues that reform measures were based on Western models, which failed to take into account the structures and the cultures that prevailed in a small developing country such as Trinidad and Tobago. The article concludes that because these reform models were not autochthonous they have had incremental success in achieving the overall objectives that were envisioned by the lending agencies.

Background to Reform A number of Commissions of Enquiry was set up during the period 1935–1958 to examine and offer recommendations to reform the public sector of Trinidad and Tobago. The issues highlighted by the early Commissions, however, were directly related to the concerns affecting expatriate officers rather than their local counterparts. This was understandable, since it should be recalled that the public sector at this time was part of a larger colonial civil service. When Trinidad and Tobago attained independence in 1962, however, subsequent Commissions were established to examine and offer recommendations to improve what now became the "independent" public sector. Commissions such as the Lewis Commission (1964), The Dolly Report (1970), The Futures Seminar (1973), The Administrative Improvement Programme (1975), The Committee of Permanent Secretaries (1981), were some of the more

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important Commissions of Enquiry that were set up to examine and recommend measures to improve performance in the public sector. The central problems highlighted by these Commissions included: - Over-centralization of personnel functions - The conflicts between senior administrators and politicians - The over-reliance on seniority rather than performance - The need for greater delegation of authority. Explanations as to why recommendations to reform the public sector were not implemented vary. Many public officers suggested that the major constraint was due to the lack of political will. Others contended that a critical factor was the resistance by senior public officers who were reluctant to implement reform since it would disrupt their power and disturb what they considered to be their "turf." The introduction of yet another Committee, commonly referred to as The Public Service Task Force in 1984, however, certainly suggests that the Government was not satisfied with the recommendations that had been advanced by the Administrative Improvement Committee of 1976 and a subsequent Committee of Permanent Secretaries that had been established in 1981. This Task Force relied on an extensive survey in order to evaluate the actual problems that existed in the public sector. It was the first time that a documented survey was ever attempted in this sector and responses to specific questions were obtained from thirteen ministries. The Permanent Secretaries and Heads of Departments in these Ministries were asked to respond to five key questions. These were: 1. What are the precise goals and objectives of your ministry or department? 2. What plans and programmes have you devised for the attainment of those goals and objectives? 3. To what extent is your ministry adequately equipped with the necessary resources to enable it to achieve these goals and objectives? 4. To what extent is the level of authority which you exercise as Permanent Secretary or Head of Department adequate to facilitate the attainment of these objectives. 5. What comments do you have on the manner in which the public service is managed? Essentially, the responses to these questions amounted to an analysis of what the Permanent Secretaries and Heads of Departments perceived to be the strengths and weaknesses of the Ministries/Departments under their care. What was telling, though, was that many senior public officers lamented that the public service had failed to attract young recruits who

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tended to gravitate instead towards private sector opportunities. They suggested that the public service should take steps to upgrade both the environment and equipment but also felt that in-depth training courses for public officers should be mounted. The survey revealed that not enough emphasis was placed on motivation as a management tool and that procedures in the public service seemed to have been instituted in a manner that appeared to prevent the fullest use of individual initiative. It was also felt that legal officers should be employed in all ministries to advise and assist in matters related to the exercise of the disciplinary powers delegated to Permanent Secretaries and Heads of Department (Summary of responses submitted by Permanent Secretaries and other top managers to the Public Service Review Task Force, November 1984). In retrospect, however, one can suggest that the Permanent Secretaries and Heads of Departments failed to take into consideration what perhaps was the more critical factor so far as public-private employment was concerned. While motivation was one factor, perhaps one of the factors relating to potential new recruits was the nature of the compensation package that was offered. Clearly, when a comparison was made between the compensation packages in the private sector as opposed to its private sector counterpart, it was understandable that a superior package in private sector organizations would be a major attraction for new recruits.

NAR: Administrative Reform and Privatization Under the new NAR regime and by Cabinet Minute dated 31st December 1986, however, the Cabinet decided "to terminate the mandate of this task force" (Cabinet Minute, no. 4, MP: 111(36(1979). The problem, however, was not that the Task Force was not performing. Rather, for the first time since attaining independence in the country a new political party, The National Alliance for Reconstruction (NAR) had taken over governmental office in an overwhelming victory of thirty three seats to the former People’s National Movement (PNM) attaining only three seats in the General Elections of that year. The major concern of the newly -elected government, however, would not be directed towards initially reforming the public sector but rather with running a country an "empty treasury." Some writers suggest that the economic policies that were introduced by many Caribbean governments during the 1960s and 1970s were largely responsible for the economic instability that would pervade the region in the 1980s and in the case of Trinidad and Tobago would greet the newly elected NAR government in 1986. In the Caribbean, including Trinidad

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and Tobago, when the economies continued to "slide" a number of options were employed in order to turn local economies around including money creation, borrowing both at home and abroad from regional and international financial agencies and from commercial banks. However little attention was paid to the structure of the debt and implications of servicing and not all borrowed money went into productive uses. Several state enterprises which were established or expanded by borrowing found themselves unable to service this debt and an increased burden was placed on the central government which was generally the "guarantor" of the debt. By the 1980s, therefore, as the debt servicing difficulties increased, new loans became difficult to obtain and governments were forced to reexamine their operations in the economy. It was this financial crisis that dictated a philosophical change in the role of the state and this was later reinforced by the conditionalities of the International Financial Institutions to whom these governments turned to for assistance. The main argument for the structural adjustment package which was introduced by the two major actors, the International Monetary Fund and the World Bank, was that if governments were to reduce their intervention in the economy and decisions were left to market forces all things would eventually fall into place and there would be no internal or external disequilibria. Indeed, many of the measures introduced by these agencies were intended to fight inflation. However, as La Guerre (1994) later argued, structural adjustment measures were not only economic. Rather structural adjustment measures had a direct impact on public bureaucracies in both the developed and developing countries. There was no doubt that quite early in their "new" term the NAR government recognized that, in addition to economic reform, the state needed to reform the public sector as well. Thus, in August 1987, a committee headed by Eugenio Moore, then Permanent Secretary to the Prime Minister and Head of the Public Service, was set up to review some proposals for public sector reform. Following this, in 1989 the members of the 1984 Public Service Review Task Force were co-opted into a Governmental Transition Team. According to the terms of reference, which was set out in Cabinet Minute 111 (36) 1989, the functions of the Transition Team included "undertaking the necessary analyses for policy reform, administrative re-organization and political reform." It was evident, however, that any effort to reform the public sector would be determined primarily by economic considerations. As a first step toward reforming the public sector, the NAR administration accordingly introduced a number of measures to reduce the size and the expenditures

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in the public sector. Measures introduced by this administration included: ¾ The introduction of a VER scheme (Voluntary Early Retirement Scheme-1988) ¾ The introduction of VAT (Value Added Tax) ¾ The introduction of a VTEP package (Voluntary Termination of Employment Programme 1989-1991) ¾ The suspension in Cost of Living Allowances and other allowances ¾ The reduction of salaries and wages by 10%. However, these measures failed to bring an effective turn-around and the NAR turned to Another measure that certainly had an impact so far as the scope of government intervention in the economy was concerned was the policy of privatization.

Privatization under the NAR Privatization was of course, one way to reduce state intervention in the economy. The literature on privatization suggests that it can take many forms, ranging from divestment to leases, build-own-operate and buildoperate-transfer. It was to be expected that since Trinidad and Tobago was a majority shareholder in forty-seven firms, in thirty-seven of which it owned 100% equity, in their attempt to reduce their interventions, the government of this country would apply different forms or models of privatization. Like many of the developed countries, the attempt to privatize state enterprises in Trinidad and Tobago was driven by three main objectives. The first objective was to promote efficiency by exposing businesses and services to competition. The second was to spread share ownership as widely as possible among the population while the final objective was to obtain the best value for each industry or service. Accordingly, in 1986 the Government of Trinidad and Tobago established the "State Enterprises Committee" the objective of which was to examine and provide recommendations for the reform of State-Owned Enterprises. This Committee established a plan based on a number of principles including the need to reduce shareholding in those enterprises with the potential to be operated viably by the private sector; rationalization of service enterprises; and restructuring of the capital base and improvement of the management personnel, systems and practices in those enterprises which, because of their strategic national importance, were to remain under state ownership.

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Although, it was not planned, the privatization exercise in the case of Trinidad and Tobago occurred during set periods. In what might be termed the first phase, 1986-1993, it was initially recommended that twelve enterprises be divested wholly or in part, six were to be disbanded and twenty-one were to remain in public ownership. However, these objectives were not achieved. One of the major constraints, it was suggested was the slow pace of the privatization exercise due to a number of factors. While, no doubt in theory the move to separate policy-making from implementation was supposed to free politicians to consider longer-term objectives, in practice this was not simple. It was found that unlike Britain, the United States, Canada and even Jamaica, issues of accountability and responsibility could not simply be left to market logic to resolve. Moreover, unlike those countries, where there was a strong private sector to "buffer" the labour fall-outs that accompany privatization, this was not possible in Trinidad where the private sector was relatively weak. It was also clear, and then that although the Government had embraced the "concept" of privatization they failed to introduce the "processes" or the necessary regulations to ensure that the privatization exercise was equitably and well managed. For example, policy experience in other countries suggests that privatization succeeds if a number of prescriptions are followed including: ¾ The introduction of regulation, ¾ Management contracts, ¾ Leases and concessions, ¾ Breaking up of the large enterprises into marketable and competitive units, ¾ the shedding of excess labour and selling past liabilities, ¾ adopting competitive bidding procedures and developing objective criteria for selecting bids, ¾ and the development of a social safety net. These procedures were certainly not introduced or perhaps could not be introduced in the case of Trinidad and Tobago. The option, for example, of making the enterprise more marketable was difficult since the Government of Trinidad and Tobago was unable to identify the necessary funding. As already pointed out, the private sector was weak and therefore not an appropriate partner. In addition, one of the major constraints was that the existing Stock Market was not large enough for a programme of domestic share sales of public enterprises to be a viable option. Because of the limited absorptive capacity of the Trinidad and Tobago Stock Exchange, privatization by way of public shares had to be restricted either to small firms or to gradual programmes of tranche sales in the larger enterprises.

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What was critical, however, was the need for appropriate regulations. To a large extent, a significant proportion of the State-Owned Enterprises and privatized firms operated in industries that were either monopolistic or oligopolistic. Apart from the reduction in protective barriers, a number of measures such as the devaluation of the "real" exchange rate, reform of the tariff system and reform of negative lists were introduced in order to introduce competition. Yet, there was clearly a limit of how far domestic regulation was an option; there were a number of industries which were natural monopolies. Secondly, there were a group of industries where domestic competition was not an option because of market size. As Beesley (1992) observed, it was clear that while the concept of privatization was introduced in a number of countries, the experiences would be different due to the structures, regulatory configurations and political traditions. The small size of the country, the lack of appropriate mechanisms for regulating industries, and the strained economic climate thus presented obstacles in the attempt by the Government of Trinidad and Tobago to privatize state-owned-enterprises. Apart from privatization, the NAR Administration proposed a number of changes including the introduction of a performance appraisal system, the introduction of a computerized data information system and a number of training courses geared towards making the public sector more responsive to the client. However, many of the proposals did not materialize since the next elections in 1991 ushered in a "re-invigorated" PNM government.

PNM: The Draper Reforms 1991–1995 There can be no doubt that when the PNM took over in 1991, it would inherit many of the constraints that faced the previous administration. Yet, the five years the PNM had served, as a small minority on the Opposition Bench certainly seemed to have provided them with a useful lesson. That lesson was that any policies that adversely affected the population, whether or not in theory it served the longer term good of the society, would certainly not create the popularity that was necessary to win an election. Thus, it was a more cautious administration that approached the question of reform. One of the first introductions by this administration was the creation of the position of Minister of Public Administration. In what was a most surprising move, one of the key members of the former Dumas Task Force, although he had not featured prominently during elections, was appointed Minister with responsibility for Public Administration.

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The Minister, in perhaps what may be considered the most comprehensive reform effort ever witnessed in Trinidad and Tobago, embarked on a number of ventures. We now turn to a consideration of these ventures:

Privatization under the PNM The second major phase of privatization occurred under the PNM regime during the period 1993-1994. The evidence so far suggests, however, that many of the larger state-owned-enterprises were purchased by foreign investors while local investors purchased a number of smaller companies. When a comparison was made of the purchase by local as opposed to foreign investors, it was observed that to a large extent one of the primary goals of privatization, namely to foster participation by local businesses within the country, had clearly not been achieved. Indeed, the outcome of the privatization exercise raised serious challenges for government since in many of the larger companies the shareholders or in some cases purchasers were foreign investors. The issue, therefore, as some economists have argued, seemed twofold: firstly some critics questioned whether the Government of Trinidad and Tobago in fact derived any major benefits from these investors particularly when many foreign companies were afforded "tax holidays"; a more pressing question though was whether the fundamental concept behind privatization-to allow greater competition-had led in fact to an exchange from local monopolies to foreign monopolies. An even more pressing dilemma, however, was that even after two decades, the presence and form of the state and its role in the economy still remains ambiguous and unstated. Apart from privatization, however, other measures were proposed and introduced to reduce the size and tasks of the public sector.

Decentralization of Personnel Agencies One measure was to decentralize responsibilities from the central agencies, including personnel agencies such as the Public Service Commissions and the Personnel Department. It should be recalled, however, that under the Republican Constitution (1976) a number of functions including authority to promote public officers in the mid-level range (41) had been already been delegated to Ministries and Departments. Yet, by 1991, it was more than obvious that the various systems and procedures in the Commission had not improved despite the various attempts at delegation. There was also considerable criticism of the

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Commission and its staff by politicians, academics and the general public in various fora. Indeed, it became clear in the move to introduce principles and practices of New Public Management that these were largely incompatible with the traditional model of Public Administration which had formerly obtained. According to Hood (1991), Pollitt (1990) and others under the new dispensation, "managers should be afforded the freedom to manage". Yet, this could not be introduced in Trinidad and Tobago since the Public Service Commission, which was enshrined in the written Constitution of the country, was reluctant to give up these powers. In the move to introduce New Public Management, however, it was clear that the Public Service Commission in its present orientation would either have to be reformed and many of its functions decentralized or perhaps simply abolished. While under the NAR administration (19861991) the Service Commissions were relatively untouched, when the PNM took office at the end of 1991, it was evident that the Minister of Public Administration, who was formerly a member of the Public Service Task Force (1984) and later the Transition Team (1986), was keen to remove the responsibilities of the Commission and place these responsibilities in the line agencies and ministries. Like reformers in Britain and the United States, he accused the public service and more specifically the Public Service Commission of being unable to efficiently manage the public service because of their cumbersome regulations and procedures, outmoded management techniques and unreliable information systems. The response of the Commission to such criticism was that "they were used as convenient scapegoats for many existing problems not only within the public service but in the wider society" (Position Paper on the Role of the Service Commission in the Context of Public Service Reform in Trinidad and Tobago, Service Commission Department, 1995, p. 2). Indeed, in their Position Paper, The Commissioners questioned whether the Public Service could and should adopt private sector values bearing in mind the differing goals of the two sectors. In fact this argument was similar to that raised by Ranson and Stewart (1994) in the case of Britain. The major concern was whether equity and justice should be sacrificed for profit. From the tone of the Position Paper, it seemed though, that the Public Service Commission was suspicious of the "new" management techniques which would lead to erosion of their powers. Draper, the Minister for Public Administration insisted, however, that what was involved was efficiency. He proposed that rather than being punitive, the Government of Trinidad and Tobago was simply embarking on new methods of management which had already been implemented in the more developed countries. He pointed out that the “new" management

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involved devolution of management controls and the corresponding development of new reporting, monitoring and accountability mechanisms. Draper, however, could not simply abolish the PSC since it was enshrined in the Constitution of the country. To change the Constitution would call for Constitutional Amendments and two thirds of the majority vote in the House. Given the small majority of the Government at this point, this proposal therefore could not materialize. Instead, it was decided that both the PSC and the Personnel Department should be transformed into small "executive agencies" and their role should be mainly policy formulation. These agencies were therefore given the mandate to reduce their staff and train the Ministries and Departments which would be required to establish their own "human resource units". However, while it seemed that the Commission did not openly object to the proposed reforms, yet the lethargy that pervaded certain deliberations was indicative of resistance on the part of this Agency. The resistance of the Commission no doubt was derived from the knowledge that their powers were enshrined in the Constitution. It was clear, though, that in the context of the new management techniques, the Commission was no longer relevant. The problem, though, was that the Commissions could neither be abolished nor its responsibilities diminished without the support of a twothirds majority in the House of Representatives. Given the confrontational nature of the political parties in Trinidad and Tobago, it was to be expected that the government could do little to reform or revise the original mandates under which the Commissions operated. Thus, when the PNM demitted office in 1995 very few changes, either structurally or procedurally had been implemented in this institution.

Restructuring Line Ministries and Departments While it was true that the NAR administration (1986-1991) made minimal attempts to decentralize the bureaucracy, by 1991 the PNM government attempted to reform or re-engineer not only the central agencies involved with personnel administration but the ministries and departments as well. On assuming power in 1991, the PNM attempted a new approach to public service reform. A Task Force under the Minister with responsibility for Public Administration to address the issue of the centralization of the human resource management function was appointed in 1992 and the primary objective of this Task Force was to make recommendations for the decentralization of the human resource management function. The conceptual challenge facing the Task Force

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was to change the conventional personnel management to a new "managerialism". The changes proposed, though, involved a significant shift from a number of systems related to planning, organizing, and coordinating to a new type of orientation under human resource management. The new assumptions involved the introduction of proactive, system -wide interventions with emphasis on fit and the need to link human resource management to strategic planning and cultural change. A number of measures was proposed to reform the personnel management function. A fundamental task that was identified by the reformers was to change the culture and principles that guided the management of people in the public service. To achieve this, it was proposed that a statement of the "proposed" management structure should be issued to the public by way of media briefings. The Task Force also developed and examined alternative structures for the decentralization of human resource management activities. Initially, it was proposed that a separate Ministry for Human Resource Management be established but this was later abandoned. Given the resistance that was forthcoming from the Public Service Commission, a more pragmatic solution namely that human resource units be established in each ministry was proposed. The thinking of the reformers at this time was that these units would be responsible for the implementation of policies and procedures and matters relating to or arising out of human resource management. In other words, it was proposed that Permanent Secretaries were to be given responsibility for recruitment, selection, training, promotion, discipline, compensation and termination. Underlying this move, which had been heavily influenced by a critical assessment of the Service Commission and the Personnel Department, was a shift in the power structure of the bureaucracy. Previously, as pointed out before, the primacy of the Service Commission lay in matters relating to recruitment, selection, promotion, and termination and to some extent discipline in the wider public service. The responsibilities of the Personnel Department included classification, compensation and negotiation. A shift in perspective, which would place all human resource matters under the control of ministries, would have removed much of the traditional power of the Commission and the Personnel Department. Consequently in the reformulation of executive powers according to the draft legislation, the Personnel Department and the Service Commission remained merely to provide support for the new units. Indeed, what the government was proposing was a decentralization of

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the human resource management function. It signalled a movement away from the Weberian concept of bureaucracy and centralized personnel management systems. The policy was adopted for a number of reasons. For instance, it was suggested that if central agencies were responsible for staffing and discipline they would provide a convenient nexus upon which unions and other groups could apply pressure in favour of their members’ interests. This, it was felt could influence human resource management policies and practices in directions that were dysfunctional from the viewpoint of operation management. Most importantly, however, it was felt that decentralization deprived the senior managers of the authority to carry out their responsibilities. A number of ministries were thus involved in preparing proposals for restructuring their personnel units. Ministries such as Agriculture, Education, Health and the Personnel Department were clearly in the forefront with their proposals and were among the first to submit their proposals to the Cabinet. While Ministries were revising their structures in order to allow for the incorporation of functions which were formerly carried out by the Service Commission and the Personnel Department, in the case of the Personnel Department, proposals were made for the delegation of responsibilities such as classification, compensation and training. While it recommended the delegation of these functions, at the same time it proposed the creation of consultancy services. In the meantime, the restructuring the Ministry of Health was proposed. This restructuring of the health sector involved the establishment of five Regional Health Authorities which were expected to operate on the basis of contracting systems. What was significant to note, though, especially in the case of the Ministries and the Personnel Department, was that while the top positions of human resource managers were advertised and contracted for two-year periods, the senior and middle level positions were not. Indeed, in many cases these positions were filled by persons within the respective ministry. In many instances, the method of selection was based on seniority rather than on merit. In fact, what can be suggested was that while the nomenclature had changed, what was evident was that what took place was little more than a cosmetic operation; changing organization titles and the jargon of civil service operators, but in fact preserving customary habits, vested interests and familiar expectations. Undoubtedly while public servants seemed to be openly adhering to the stipulations of the Minister of Public Administration, they were at the same time jealously guarding their turfs. It was evident, however, that although there had been assurances by the

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government that there would be no staff reductions in the public sector, this was far from accurate. Agencies such as the Industrial Development Corporation (IDC) and the Management Development Centre (MDC) were closed and the positions of 100 members of staff terminated. In a similar exercise in the Port Authority, approximately 800 positions were terminated and an undisclosed number were also released from the Estate Police Association and the Senior Management Association. Approximately 110 employees also became unemployed with the closure of the Tourism Development Company and on February 8th 1994 the Public Utilities Commission (PUC) retrenched forty nine members of staff while in the Trinidad and Tobago Printing and Packaging Company, 250 employees were sent home (Trinidad Express, April 3, 1994). In what seemed to be an unprecedented move, also, the Organization and Management Division, which it should be recalled had been established in 1951 and was responsible for providing advice to ministries and departments on issues relating to relevant structures and systems, was disbanded and members of its staff were sent to various ministries and departments. At the end of 1995, it was clear that no "real" reforms, so far as restructuring was concerned, had actually taken place. Moreover, while it was true that the names of the personnel units within the ministries were now referred to as human resource units, it was evident that in terms of actual performance, there was little or no basic change. The PSC continued to recruit, select, promote-essentially on the basis of seniority. The Personnel Department, while it decentralized some responsibilities such as the grant of leave, continued to be actively involved in the personnel function. In the case of the health sector, while the Regional Health Authorities Act had been passed in 1994, this had not been implemented.

The introduction of Human Resource Management Systems and Structures Apart from the proposed changes to the structure of the public service commencing in 1991, the government introduced what they termed "new approaches" for a wide range of activities which could be subsumed under the broad heading of human resource management and human resource development. In 1993 a Job Evaluation and Classification Exercise was commissioned by the Government of Trinidad and Tobago. The firm of KPMG Peat Marwick was hired to establish a new system for the classification and compensation of jobs in the service. This "new" system

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was one that was supposedly highly objective in that it allowed an open evaluation of employees and their jobs. The merit of the proposed exercise, which followed the Guide Chart Profile System in the United States, was that it had been successfully implemented in countries of the United Kingdom, the United States, Canada and some African countries. According to Williams, the partner in charge of the Trinidad office of KPMG, the main objectives of the exercise were to eliminate/decrease wage and salary inequities, to determine the relative worth of jobs within the organization, and to establish pay rates for all jobs using objective quantitative methods. More than that, though, the Job Evaluation Exercise sought to replace the system installed in 1966 by the Canadian firm of Collett and Clapp which was by this time clearly obsolete. Another area found by the reformers to be critically in need of change was the system of staff reporting. Because it was felt that the old system did not take cognizance of the development of employees, a new performance appraisal system was devised. A pilot testing of the new system began in the Ministry of Agriculture Land and Marine Resources on November 4th 1992 and it was estimated that the system would be fully operation in the wider public service by 1995. The new system was expected to achieve three major objectives: it would establish standards of performance for jobs throughout the public service; it would lead to greater efficiency as indicated by higher processing capacity. Finally, it was felt that the new system would provide a more efficient means of rewarding performance. The Central Training Unit of the Personnel Department was given responsibility to implement two levels of training. The first level involved training of new Permanent Secretaries, the second provided training for senior and middle level managers of the civil and protective services. The training of Permanent Secretaries was conducted over four weeks and included areas such as self-management, stress management, transition and change management in large complex organizations, financial management, strategic management and human resource management. At the middle management level, programmes were extended over several weeks and the content was extended to include a Human Interaction Laboratory, Human Resource Management and the development and implementation of a change management project. It was hoped that within two years the training would produce improvements in the strategic planning process as indicated by the development of annual plans which would provide a benchmark for the assessment of the achievements of each ministry. Other areas targeted for reform included the Human Resource

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Information System (HRIS) where payroll, personnel administration, industrial relations, manpower planning and development, and employee health and safety would form part of a larger database. The major objectives of these changes were to allow for speedier access to human resource data and, in addition, to facilitate more effective human resource management decisions. Proposals for reform also targeted financial areas including budgeting and auditing. Further suggestions were made in respect of record maintenance and retrieval, the establishment of customer service centres, employee assistance programmes and a variety of incentives for employees. By the eve of the 1995 General Elections it was clear that, despite, the much publicized success, no overall achievement had been recorded in the implementation of any one aspect of reform. With the exception of the Ministry of Health, decentralization efforts especially as they related to the Ministry of Education, the Service Commission Department and the Personnel Department were still essentially confined to the policy stage. Computers that had been allocated to the Service Commission Department for the establishment of a personnel data bank had not yet been installed and no programme designed or identified for the exercise. Aspects of the programmes of training had not been carefully worked out and hence were largely ineffective. Finally, although "new" human resource management legislation which was supposed to replace the Public Service Commission Regulation (1966) had been drafted it had not been submitted for the approval of Cabinet. There was no doubt that Draper, the Minister with responsibility for Public Administration, had tried to introduce reform measures that were not confined to Trinidad and Tobago but had a Caribbean "flavour" as well. Indeed, in his paper to Capam in August 1994, Draper had made a number of references to Patterson’s call for a more "integrated" method of reform in the Caribbean. He also leaned heavily on Osborne’s and Gaebler’s lesson for "reinventing government". Later, in 1995, he reiterated the need for reform to be introduced throughout the Caricom Community as a whole (CARICAD, 1995). Draper had what appeared to be comprehensive and ambitious plan to reform the public sector in Trinidad and Tobago and perhaps make it the model for other Caribbean countries. Yet, although there were certainly "new" introductions these did not achieve the overall success that had been envisaged. While isolated measures such as the introduction of strategic plans and missions in the ministries were implemented, yet, success in the more critical areas such as the decentralization of the personnel agencies or the introduction of a new system of budgeting were yet to take root.

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Few writers have attempted to analyze what in a real sense was the failure of the most comprehensive and costly reform exercise in the Caribbean. Interviews with senior civil servants have attributed the failure of this exercise to the non-involvement of the Minister in the latter stages of the reform. Yet others believed that the Minister’s plans were too ambitious, given the short electoral term of office. Another explanation, one that was highlighted by the media, was what laypersons believed to be resistance by public sector employees. However, while at this level the explanation offered as a constraining factor in reforming the public sector is consistent with the overt perceptions, this explanation seems too simple. Clearly, the move from one method of administration to another that was based on the principles and practices of the private sector amounted to no more than a new epistemology in the case of Trinidad and Tobago. The irony in the case of Trinidad was that, in spite of the flurry of publicizing the initiatives that were introduced, no concerted effort was made to monitor or evaluate them. Evidently, no person who was trained in project management would have overlooked such a critical phase in the reform exercise. In a sense, then, it can be argued that the efforts to reform the structures and the cultures in the public sector of Trinidad and Tobago may have been merely a cosmetic political ruse.

The UNC Administration and Public Sector Reform (1995-2000) When the United National Congress (UNC) assumed power in 1995, there was public speculation whether they would remain for a full term of office. While the various media houses suggested that the public was disenchanted with the PNM and so voted them "out of office" it was not a clear-cut victory for the UNC. Rather of the thirty six seats, the PNM had retained seventeen, the UNC had gained three more seats than it had obtained in the previous election and thus "had a tie" with the PNM by also attaining seventeen seats, and the two seats in the twin island, Tobago remained with the NAR. Faced with a seventeen–seventeen tie, the UNC invited the NAR to join with them to form a coalition government. Thus, for the second time in the country, another coalition government, the United National Congress/National Alliance for Reconstruction assumed power. Speculation was rife whether there would be public outcry against what was overtly perceived to be “Indian Government” since both the Prime Minister and the majority in his Cabinet were East Indians. This speculation no doubt had been fuelled by rumours that the country was not ready for an "East Indian administration and there was the possibility of a

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revolution". However, while there were no problems of political succession, there were clearly problems when the Ministers assumed responsibilities in their respective Ministries. Indeed, the number of conflicts, which emerged between Permanent Secretaries and Ministers, was a clear indication that the senior public servants were opposed to the styles of the new government. Hostilities were further increased when some Ministers, without the advice of the Public Service Commission, advised that officers should proceed on leave. It should be recalled, however, that because Permanent Secretaries were public officers their terms and conditions of office were determined by the Public Service Commissions. During the early months of their administration, therefore the UNC spent an inordinate period of time in requesting the Commissions to transfer Permanent Secretaries and other senior officers from one ministry to the other. With their early experience to guide them, then, it was a cautious UNC Government that proposed reform of the public sector. The UNC, like its predecessor, appointed a Minister with responsibility for Public Administration. They went one step further, however, by establishing a Ministry for Public Administration. Even when this "new" Ministry was established, it was more than clear that reform efforts were more lowkeyed than those of the previous administration. While the new "epistemology" was still employed, the actual reform measures were more constrained. The Job Classification Exercise that had been introduced by the previous administration was an on-going concern, while training in the management of a new Performance Management and Appraisal System continued. The Minister for Public Administration, also, as previously mentioned, introduced a document entitled "Towards a New Public Management”. According to this document, the major policy that was articulated aimed at: …focusing the philosophies and values of the Public Service towards a culture of service, accountability, professionalism and responsibility for meeting the challenges of the 21st century (Towards a New Public Administration. A Policy Agenda for the Public Service of the Republic of Trinidad and Tobago. Ministry of Public Administration and Information, 1997, Statement of Minister).

The document itself was quite thin, comprising no more than forty pages of text, some of which represented no more than large slogans in a bulleted format. It focused on areas that were in no way new to the public sector and the contents included a call to service, strategic issues, issues of

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reform and transformation, policy guidelines and framework, policy objectives, issues of implementation and a "proposal for implementation towards 2001". The actual document, however, was nothing more than a mere re-hash of what had been documented previously by the PNM administration and was indeed a poor effort on the part of the UNC administration since it clearly illustrated that they lacked the necessary foresight to reform the public sector and had nothing "new" to add. Indeed, it seemed that much of the document consisted of no more than excerpts pulled from the various administrative reform documents that had been circulated by the PNM. In retrospect, one can conclude that the UNC/NAR administration did not place a major emphasis on public sector reform, and thus the scale and scope of reform measures in this sector were largely incremental. While they did not attempt to remove or delegate any of the responsibilities from the central personnel agencies to the line agencies, however, in order to circumvent or curb the authority of the various Public Service Commissions, they proposed the introduction of a Bill referred to as the "Constitution Amendment Bill, 1998". The Bill proposed that the administrative responsibilities of all the Commissions should come under the scrutiny of Joint Select Committees, but because of the furore raised by the various interests such as the trade unions, members of the public and the Public Service Commissions themselves in the media, both print and television, Act 29 of 1999 which was finally passed was a "watered down" version from which the Judicial and Legal Service Commission was excluded. One visible change, under the UNC/NAR regime, took place in the health sector. In December 1995, when the UNC/NAR Administration assumed office, it implemented the Regional Health Authorities (RHAs) Act. The five Regional Authorities set out in the Act were established in population catchment areas such as East, West, North, and South of Trinidad in addition to a Regional Health Authority in Tobago. It was proposed that so far as structures was concerned, that the Ministry of Health would play a central role in the formulation of health policy while the RHAs, would be responsible for the delivery of health services. Responsibility for the delivery of health care in each region was determined by a Board, whose major objective was to provide policy advice to a number of human resource advisers and practitioners. Furthermore, since the structure of the RHAs was premised on a purchaser- provider model, it was envisaged, that the government would issue contracts to the RHAs for the delivery of health services. From the inception, however, the RHAs were and continue to be .

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"plagued" with a number of difficulties. One of the more critical, who unfortunately still continues to be an issue, was that employees refused to accept contract positions with the RHAs. Not surprisingly, many employees were reluctant to accept contract positions within the RHAs since there was an element of uncertainty so far as pensions and other long-term benefits are unconcerned. Another more pressing issue, however, was the constant bargaining over compensation by the doctors and the outward migration of nursing staff. To compound, these problems there were allegations of mal and misappropriation. Indeed, in A Special Report by the Auditor General, a number of unauthorized transactions were revealed. These included: ™ The payment of salaries in excess of $150,000 per annum without the approval of the Minister of Health. ™ The unauthorized payment of $6,600 representing additional allowances to Board Members. ™ Unauthorized overpayments including the payment of three executive officers of the Authority were paid sums totaling TT$211,063.98 on December 01. It was reported that this sum represented annual gratuity and a "buy-out" of sick leave and vacation leave not taken. In accordance with their terms and conditions of employment, the officers were not entitled to the payment of their gratuity at 2000 December 01. ™ There were variations in the terms and conditions of employment. (A Special Report of the Auditor General of the Republic of Trinidad and Tobago on an audit into certain areas of internal controls at the North West Regional Health Authority (NWRHA) dated 2001 June) On the heels of the Auditor General’s Report, in September 2001, A Report by the Personnel Management Services Ltd was also submitted. Again the consultants discovered a number of unauthorized transactions. Matters of unauthorized overpayments were accordingly transferred to the office of the Director of Public Prosecution and later accordingly placed in the hand of the judiciary. In one particular case where the court concluded its judgement, however, it found that due to the absence of clear directions, the Chairman should be exonerated of all charges. The Chairman on his part, claimed that because of "new public management" doctrines where "managers were given the freedom to manage" he would repeat his actions if given the opportunity in the future. In a statement to the media, the Chairman, in what he claimed was a personal victory to him, suggested that the measures taken by him allowed the Authorities to provide efficient services by cutting away the red tape and bureaucracy.

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Yet, this was a hollow boast since clearly the organization had not increased its output nor reduced the cost of running the health institutions. Rather, expenditures in the organization had increased significantly. During their fairly short term in office, apart from the restructuring in the health sector, the UNC did not undertake any major reforms in the public sector. The strength of the UNC Administration lay in their boast that "performance beats old talk" and they set about a massive road-paving exercise along with the construction of an international airport and a number of secondary schools. However, these exercises were not undertaken by public service ministries but were largely contracted out to private contractors. What seems quite clear, then, was that UNC was creating parallel agencies to undertake similar tasks. Thus in terms of actual output, the costs paid for the delivery of services was almost doubled. It was clear, then, so far as restructuring the public service was concerned, "that political rhetoric outran measured achievement". As Savoie (1994) pointed out in the case of the Mulroney Government in Canada, the re-structuring exercise came to very little or, in the case of the health sector in Trinidad and Tobago, presented an even greater dilemma in the long run. The constraints, that emerged during the attempt to reform the public sector of Trinidad and Tobago were, of course, not new and indeed was not confined to Trinidad and Tobago or its Caribbean counterparts. The lack of political wills, resistance by public employees, and the complexity of the implementation process were universal problems. However, unlike many countries, including Jamaica, what perhaps was the greatest obstacle to implementing comprehensive reform in the case of Trinidad and Tobago was the fairly rapid oscillation between the Government and the Opposition. For example, it should be recalled that during the period 1986–2003 as the table below reveals, no political party was able to retain a consecutive term in office. Indeed, during the period 2001/2, a tie between both parties resulted in a hung Parliament (both the PNM and the UNC attained eighteen of the thirty seats each). When the President appointed the PNM, it was to be expected that this administration would serve as an interim administration. Accordingly, in October 2002, another General Election and the PNM attained a clear, if slim majority.

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Table 1 Term of Political Parties 1986–2003 Political Party National Alliance for Reconstruction People's National Movement United National Congress People's National Movement

Period in Government 1986–1991 1991-1994 1994–2000 2001–2003

Because of this political instability, it was to be expected that each government would apply short term "fixes" in their attempt to "woo" the electorate rather than attempt long-term reforms.

The PNM Administration- Reform Continues (2001-2003) It was clear that PNM, given its very slim majority in the Parliament during this present period would be reluctant to undertake any reforms that would adversely affect the population. Thus, to a large extent, the drive for reforming the public sector that they had exhibited during their prior term of office (1991-4) has declined significantly. A number of measures which had been introduced by Draper in 1991 are still continuing and include: 9 The introduction of a performance appraisal system. 9 The introduction of a Job Classification Scheme 9 The introduction of a computerized Human Resource Information System 9 The delegation of selected functions from central personnel agencies such as the Personnel Department and the Service Commissions to line Ministries and Departments. 9 The establishment of Human Resource Departments 9 The filling of positions of Human Resource Advisers, and Human Resource Officers (an examination was held in 2002 to select these officers) 9 The re-establishment of a Training Agency, which had been disbanded in 1994. Yet, these reforms are not as intense as they were in 1991-1995. The lack of impetus, some senior public servants suggest has been due to the lack of political will. Other mid-career public servants suggest, however, that there is resistance to change by senior public officers who are afraid or

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perhaps unable to deal with change. Whatever, the reasons, however, it is evident that reform of the public sector is not as "urgent" as it once was in 1986-2000. Perhaps, because of a proposed windfall due to the increasing prices of oil and petroleum-based products, the mainstay of the economy of Trinidad and Tobago, quite understandably much of the attention of the government is directed towards this sector. Public sector reform while still on the agenda, thus, has been given low priority.

Conclusion Since 1935 numerous Committees and Commission have been set up to examine and recommend proposals to reform the public sector. During the period 1935-1986, however, few changes actually were introduced in this sector. By 1986, however, when a new regime came into power, they attempted to introduce some major changes in the public sector. However, many of these new measures were driven by economic considerations and involved measures such as privatization, contracting out along with a reduction of public sector salaries. In 1991, when a renewed PNM administration took over, they undertook comprehensive reform of the public sector. These reforms followed the model currently in vogue, New Public Management, and thus to a large extent the government attempted to introduce a number of private sector- type measures such as Performance Management Systems, Human Resource Systems and structures where "managers had the freedom to manage". However, when this government demitted office at the end of 1995, it was evident that no real achievement had been realized. When the UNC administration, an Indo- Trinidadian party assumed office in 1995 - 2000, it was to be expected that they would be hesitant to reform a public service that was essentially African based. While it was true that a Ministry of Public Administration was established during this period, many of the reform measures were policies that had been introduced by the former regime. It was found, however, that during this period the pace of the reform was unusually slow. What the UNC administration attempted, however, was to implement greater measures to provide for scrutiny of the administration. For example, one such piece of legislation was Act 29 of 1999 in which Joint Select Committees were established with the specific purpose to enquire into and recommend policies as it related to the public service (See Ryan and Bissessar 2002). However, even this kind of scrutiny did not result in any significant changes and both the public servants and the civil society as a whole were highly critical of these measures.

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When the PNM administration once more assumed office in 2000, the vigour and pace that had accompanied their last stint in office was noticeably absent. There is no doubt that each successive government had sought similar objectives as it related to reform. For the NAR administration, reform meant the need to reduce expenditure to keep in line with structural adjustment impositions. While this was no doubt uppermost in the plans of the PNM administration, this regime attempted to reduce expenditure by contracting out, decentralization and privatization. Each regime also tried to increase productivity, although this would have been approached in different ways. The NAR (1986-1991), for example, sought to do this by training; the PNM (1991-1995) by the introduction of performance appraisal and other human resource measures; the UNC (1995-2000) by contracting out many of the state services including the building of roadways. Clearly, the impetus for reform has diminished considerably since the first comprehensive attempt was undertaken by the NAR (1986-1991). Human resource reforms such as the Job Classification Exercise are still continuing while the computerized information system is presently being piloted in the Service Commission and the Personnel Department. Yet, reform has been slow. Some suggest that the original rationale for public sector reform, that is structural adjustment conditions, are no longer a priority and that the government is now able to finance a bloated bureaucracy due to the increase in revenues derived from the export of oil and gas-based industries. It has been noted, for example that oil production is expected to rise from the current level of 120,000 bpd to 200,000 bpd by mid 2006. In addition, Atlas Methanol’s US$400 million, 5000 tons per day methanol plant are expected to come on stream in the fourth quarter of 2004. It is projected that this will increase the country’s total production of methanol from 2.86 million tons per year to 4.6million tones per year. (Republic of Trinidad and Tobago, House of Representatives, Budget Statement, 2003) Vision 2020: People… Our Priority) Presented by the Honourable Patrick Manning, October 21, 2002, 8–9). Interviews conducted with senior public officers and politicians suggest also that government has begun to realize that reform is a longterm objective and that the gains are not immediate since they involve changes in the political culture as well as the culture of the public service organization. It was also felt that protection of turfs by unions and other interests were serious obstacles in the way of reform. It is also recognized that the Service Commissions are formidable protectors in what has been seen as the interest of the public servants. Also the Constitution and its various protection represent a major constraint on reformers. This is

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particularly so in the context of Constitutions in the Caribbean with specially entrenched clauses which make it difficult for governments, unless they have overwhelming majorities in the legislative Chamber to embark on the kind of legislative changes which would allow for fundamental reform. This is why so far the gains have been largely modest and have led officials like a former Chief Personnel Officer to distinguish between short term and long-term reform. It is no doubt more profitable, given the five-year electoral cycle, to introduce short term and what may be successful "marketing measures" rather than aim at long-term measures. Internationally, as in Trinidad and Tobago, there have been attempts to reform bureaucracies to make them more responsive to the new demands much as the rulers of the new states were called upon to respond to the new expectations raised by independence. The answer by the latter was "Development Administration" during the 1960s. Today the panacea that is being offered is “New Public Management” and countries like Trinidad and Tobago have embraced its prescriptions with enthusiasm. Indeed, there is now what has been described as a re-invention movement" emphasizing issues such as decentralization, performance and accountability. A number of writers have reflected on attempts to reform public sector organizations (Barzelay, 2001; Pollitt, 1996; Osborne and Plastrik, 1997; DiIulio, 1994; Osborne and Gaebler, 1992). Yet, as we have seen success continues to elude reformers both in developed as well as developing countries. All the recommendations offered so far have been well meaning prescriptions-the larger problem being how to change norms. But cultures are not easily changed and written constitutions such as we have in Trinidad and Tobago do not allow for easy modification of inherited structures; it is as if the Commissions froze Public Administration at a point in time. What is required, then, in order to reform the public sector of Trinidad and Tobago is a more long-term solution, free from slogans and clichés, with well thought out philosophies and practices that are designed or modified to fit the peculiar environment of the organization and the country. What will also be required is the re-engineering of the central personnel agencies such as the Public Service Commission and the Personnel Department to allow them to function as monitoring and policy making bodies rather than have them actually performing routine personnel functions. Perhaps, though, the more critical reform is to change the psyche of citizens by stressing that the role of the state is no longer that of the patriarch. Rather, civil society and non-governmental organizations

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should be encouraged to be more involved in the delivery of services and in policy-making. However, this will no doubt be a long-term goal.

References Administrative Improvement Programme of the Government of Trinidad and Tobago 1975. The United Nations Project TRI/71/509. Port of Spain: Trinidad. Adam, Christopher, William Cavendish and Percy S Mistry. 1992. Adjusting Privatization. Case Studies from Developing Countries. Kingston, Jamaica: Ian Randle Publishers. Aucoin, Peter. 1990. “Administrative Reform in Public Management: Paradigms, Principles, Paradoxes and Pendulums.” Governance. 3, 2. April: 115-37. —. 1991. “The Politics of Restraint Budgeting.” In The BudgetMaximizing Bureaucrat: Appraisals and Evidence. A Blais and S Dion, editors. Pittsburgh: University of Pittsburgh Press. Barzelay, Michael. 2001. The New Public Management. Berkley and Los Angeles: University of California Press. Das, S. K. 1998. Civil Service and Structural Adjustment. Calcutta: Oxford University Press. DiIulio, John J. Jr., (ed.). 1994. Deregulating the Public Service. Washington DC: The Brookings Institution. Eaton, George. 1992. “The Public Service Commission in Grenada.” In Issues and Problems in Caribbean Public Administration. Selwyn Ryan and Deryck Brown, eds. St Augustine, SALES. Gray, Andrew and Bill Jenkins. 1995. “From Public Administration to Public Management: reassessing a Revolution.” Public Administration 73, 1: 75-100. Hood, Christopher. 1991. “A Public Administration for All Seasons?” Public Administration 69, 1, Spring: 3-19. Keller, A.G. 1931. Societal Evolution: A Study of the Evolutionary Basis of the Science of Society. New York: N.P. La Guerre, John Gaffar. 1994. In Structural Adjustment, Public Policy and Administration in the Caribbean. St Augustine, Trinidad: School of Continuing Studies: Mascarenhas, R.C. 1993. “Building an Enterprise Culture in the Public Sector: Reform of the Public Sector in Australia, Britain and New Zealand.” Public Administration Review. 53, No. 4. Metcalfe, L. 1993. “Conviction Politics and Dynamic Conservatism: Mrs. Thatcher’s managerial Revolution.” International Political Science

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Review, 14: 351-372. Mills, G.E. and Paul Robertson. 1974. "The Attitudes and Behaviors of Senior Civil Servants." Social and Economic Studies. O"Neil Lewis, J. 1964. First Report of the Working Party on the Role and Status of the Civil Service in the Age of Independence. Government Printery, Trinidad. Osborne, David and Ted Gaebler. 1992. Reinventing Government: How the Entrepreneurial Spirit is transforming the Public Sector. Reading, Mass.: Addison-Wesley. Peters, B. Guy and Donald Savoie. 1986. "Burning the Village: The Civil Service Under Thatcher and Reagan." Parliamentary Affairs. 39 (1) January: 79 -97. Peters, B. Guy. 1994. "Civil Service Reform: Misdiagnosing the Patient." Public Administration Review. 54 (5) September/October. —. 1995. The Politics of Bureaucracy. 4th edition. White Plains New York: Longman Publishers. Pollitt, Christopher. 1996. Managerialism and the Public Services. 1996. Mass.: Blackwell Publishers Ltd. Pierre, J. 1993. “Institutional Change and the Politics of Public Administration in Sweden.” International Political Science Review. 14: 387-402. Pollitt, C. 1993. Managerialism and the Public Services 2nd edition. Oxford: Blackwell. Ramsaran, Ramesh. 1994. "The Theory and Practice of Structural Adjustment with special reference to the Commonwealth Caribbean." In Structural Adjustment, Public Policy and Administration in the Caribbean. Edited by John Gaffar La Guerre. St Augustine, Trinidad: School of Continuing Studies: 9-37. —. 2001. "Reflections on Development and Structural adjustment in the Commonwealth Caribbean." In Issues in the Government and Politics of the West Indies. 2nd edition. Edited by John Gaffar La Guerre. St Augustine, Trinidad: School of Continuing Studies: 359- 381. Ranson, S and J Stewart. 1994. Management for the Public Domain. Basingstoke: Macmillan. Ryan Selwyn and Ann Marie Bissessar. Governance in the Caribbean. SALES, St Augustine, Trinidad, 2002. Savoie, D. 1994. Thatcher, Reagan, Mulroney: In Search of A New Bureaucracy. Toronto: University of Toronto Press.

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Reports Report of the Commission on the Civil Service of Trinidad and Tobago, 1954. Report of the Commission of Enquiry into the Organization and Cost of the Public Service of Trinidad and Tobago, 1957 - 8. Report to the Honourable Premier by the Honourable Ulric Lee on the reorganization of the Public Service 1959. First report of the Working Party on the Role and Status of the Civil service in the Age of Independence, 1964. Report of the Working Group on the Organization and Streamlining of Public service Practices and Procedures in Trinidad and Tobago, 1970. Administrative Improvement Programme of the Government of Trinidad and Tobago - UN project - TRI/71/509. Proposals for Improvement of Efficiency in the Public Service, 1981 Towards a New Public Administration. A Policy Agenda for the Public Service of the Republic of Trinidad and Tobago. Ministry of Public Administration and Information, 1997, Statement of Minister. Caribbean Centre for Development Administration. Report of a Working Group on Public sector Reform and Administrative restructuring in the Caribbean Community. With assistance from the Caribbean Development Bank and the Commonwealth Secretariat and the Caribbean Community Secretariat, ISBN 976-8083-22-0- Barbados, 1995. A Transition in Outlook for Government A Culture of Success: a Paper Presented to the Inaugural Conference of CAPAM on Government in Transition. Gordon M Draper, Minister in the Office of the Prime Minister responsible for Public Administration and Public Information in the Republic of Trinidad and Tobago, August 1994. Summary of Responses submitted by Permanent Secretaries and Other Top Managers to the Public Service Review Task Force, November, 1984.

CHAPTER SEVEN TRANSFORMATION OF PUBLIC UTILITIES: CASE STUDY: THE BUENOS AIRES CONCESSION ROLAND G. BAPTISTE

Privatization is controversial because of its ideological connotations. Privatization is also difficult to define. One way to capture its meaning is to view it as a continuum of actions starting from its mildest to its most extreme forms. A mild form of privatization would be the use of private sector management techniques in the public sector, and an extreme form would be outright divestment. Between the two extremes are a number of strategies that allow private sector participation in public sector organizations. There are three forms that are commonly used in the utilities: the Management Contract, the Build-Own-Operate-Transfer, and the Concession. There is another way to view Privatization. A government can privatize “provision” or “production”, or both (Kholderie, 1990). When a government privatizes “production”, it means that it has decided to continue to provide the service, but it has given the responsibility for production to the private sector. On the other hand, a government might decide to charge an economic price for a service or product that it continues to produce. In such a case the government would be privatizing “provision”. Finally, a government might get out of the picture entirely, as in divestment, leaving the decisions regarding provision and production to the private sector. It is possible to take the issue of privatization out of the realm of ideology, and treat it from a management perspective. To do this, one must consider it an option when the objective is to improve the performance of a public sector organization. From this perspective, privatization is not an end in itself; it is a strategy by which to achieve ends. Nor is it a strategy

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that is innately good or bad. This is the perspective adopted in this paper. Moreover, the process of privatizing is viewed as primarily a change management challenge. Change Management refers to the activities involved in planning, implementing, and normalizing change. While investigating the corporatizing of the postal services of Trinidad and Tobago, this researcher recognized that change strategies had been used reflecting the work of Lewin (1951), Mintzberg (1983), Kotter (1996), and Ottaway (1979); but there is no evidence that the planners did this knowingly. One of Lewin’s contributions to change theory was his explanation of change in social systems as a three-stage process, and his assertion that there is no change unless all stages are completed. Using the metaphor of ice, he named these three stages: unfreezing, changing, and refreezing. Ottaway uses the terms: generating, implementing, and adopting or normalizing. Ottaway’s main contribution however was the development of a typology of change agents, the three main groups of which are: generators, implementers, and adopters, functioning at each of the stages. While Lewin explained the change process, and Ottaway identified different types of change agents, Kotter explained how to lead change. After studying several change initiatives, he advised that eight sets of actions must be taken if success is to be achieved. Finally, Minzberg’s contribution comes from his work on power and conflict in organizations. He posited that a number of groups and individuals, influencers, with interest in the organization, seek to influence major and even minor organizational decisions. Influencers outside the organization are the external coalition; those inside are the internal coalition. Change requires a level of consensus amongst these stakeholders. The model of change reflecting these theories is as follows (Baptiste, 2004): Phase One: Generating Change (initiated and pursued by change generators) a. Recognizing the need for change. b. Conceptualization of an ideal future (Vision). c. Convincing the external coalition, and managing resistance. d. Convincing the internal coalition, and managing resistance. e. Preparing the ground for implementation – removing the procedural, legal and structural barriers to change. Phase Two: Implementation f. The use of change agents who in relation to the organization may be external, internal, or external/internal (change implementers). g. Empowering employees for broad based action.

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h. Ensuring constant communication. i. The celebrating of short-term wins. j. Consolidating and generating more change. Phase Three: Adoption k. The adoption of the new way of functioning by stakeholders, in particular, employees and clients (change adopters). l. The anchoring of change in the culture of the organization. One might ask: could this model be used to successfully privatize other utilities; and as well could it be used as a diagnostic tool? This researcher is seeking answers to these questions in the water sector. One of the cases being studied is the concession in Buenos Aires. The proposition is that successful privatization depends on the competence of the relevant government agencies to manage change. Success is determined as follows: objectives are achieved or are on track to being achieved; stakeholders are satisfied with and are using the output of the new system; and stakeholders have accepted the new status quo, as indicated by the level of disputes and controversy.

Case Study: The Buenos Aires Concession Method The primary method used to construct this case was a document study and the main documents studied were reports, academic publications and journalistic articles. The aims were to obtain a complete picture and to eliminate biases. Information was also obtained from the web site of Aguas Argentinas (the concessionaire) and from the concession contract. Initially, it was hoped that interviews with key participants might have been obtained. However, this hope did not materialize.

Background Privatization of the Argentine water sector was part of a national privatisation programme that started in 1989 and continued into the nineteen nineties. The Buenos Aires concession of 1993 involved the privatisation of Obras Sanitarias de la Nacion (OSN) which serviced Buenos Aires and its surrounding municipalities (Idelovitch and Ringskog, 1995).

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Phase One: Generating Change Change generators lead the first phase of a change process (Ottaway, 1976). Their task is successfully completed when they secure consensus among stakeholders on the necessity for change, and accomplish the necessary preparations for implementation1. In the analytical framework being used, Ottaway’s taxonomy is overlaid with Kotter’s (1996) idea of a ‘guiding coalition’, which is responsible for leading change through all its stages. The Government of Argentina under President Menem, the committee established by the government to lead the privatization of OSN, and the technocrats who supported this committee were the change generators. But no overarching guiding coalition was established.

Triggers Change is very often triggered by a crisis. In the case of the privatization of OSN two problems converged. There was the national economic crisis on the one hand, and the poor state of OSN on the other. OSN was characterized by a number of problems common to many water companies around the world. Unaccounted-for water was about 45% of the water produced. Water meters were installed at only 20% of the connections, and these were not read regularly. Perhaps as a result, water demand was estimated in the high range of 400-500 litres per capita per day–double the norm for well-managed systems (Idelovitch and Ringskog, 1995). Insufficient investment, because of shortages of public funds, led to other problems. Only 70% of the population of the metropolitan area was connected to the water system, and only 58% to the sewerage (Concession Contract). The shortfall was mainly in the poorer, suburban areas. Moreover, the system was more than 60 years old and in need of repair and replacement. There were therefore frequent breaks and interruptions, low pressure and poor quality in dry periods, and sewer flooding during heavy rainfall. The Company also suffered from managerial problems. The number of employees to number of connections ratio was 8 per 1000, compared to 23 in efficient companies (Jaspersen, 1997). Salaries were low, turnover high, productivity low, and discipline lacking. And significantly, priorities 1

Lewin (1951) named this phase the “unfreezing”. Ottaway (1976) uses the term “generation”.

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were not set on commercial grounds (Alcazar, Abdala and Shirley, 2000).In the end, these considerations gave the government reason to take the decision to privatize (Idelovitch and Ringskog, 1995).

The Vision The various options for privatization were considered and the concession option was selected. This was chosen because of the considerable amount of investment that was needed to take the water and sewerage systems to international best-practice standards. The targets set for the concessionaire describe the vision and these were specified in the concession contract: guaranteed standards for water quality, continuity of service, water pressure and flow; targets for metering, loss reduction, network rehabilitation and development of sewerage treatment plants; expansion mandates for water supply from 70% coverage at the start, to 100% at the end of the 30 year concession; expansion mandates for the sewerage system from 58% coverage at the start, to 85% at the end of the concession; expansion mandates planned on a five-year basis for each of the four geographical zones into which the concession is divided; fiveyearly reviews of the tariff regime with renegotiation permissible in the event of unforeseen circumstances outside the control of the concessionaire; and investments of about US$ 4 billion over the life of the contract with a significant proportion, US$ 1.2 billion, being disbursed in the first five years (Zehra, 2001, Concession Contract).

Convincing the Stakeholders (Internal and External) A number of interests in Argentina were opposed to privatisation: public sector workers and their unions who feared job-cuts, managers of public sector organizations who feared dismissal, businesses who supplied public sector companies and who received lucrative contracts (capitanes de la industria), members of Congress who feared negative reactions from voters, and provincial governments who feared the impact of the loss of jobs in their regions (Treisman, 2003). President Menem used a mixture of cooptation and attack (carrot and stick) to win support from these stakeholders, and he got it (Treisman (2003).

Preparing the Ground The process of preparing the ground involves setting the stage for implementation by removing administrative barriers to change and putting

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enabling structures in place. Two legal instruments governed the privatisation of OSN, Law No. 23696 to reform the State, and Decree No. 999/92 that outlines the regulatory framework. The enactment of these legal instruments paved the way for implementation. Another important activity was risk assessment and management. To reduce the risk to the public sector of poor performance, it was decided to pre-qualify bidders; and in order to reduce the risk that the cost of such services to the public would be higher than the existing, it was decided to carry out a careful evaluation of the technical and economic feasibility of the venture prior to issuing the bids, and to ensure transparency in the bidding process (Idelovitch and Ringskog, 1995). In respect of the private participants: the technical and commercial risks were mitigated by providing potential bidders with all the available information on the system and by changing existing legislation and policies, if necessary, to ensure payment for services provided and to permit cutting off the service in case of nonpayment. The financial risks were reduced by ensuring free convertibility of foreign currency. And finally, the legal risks were reduced by introducing in the conversion contract clear clauses on arbitration or other modalities for resolving disputes (Idelovitch and Ringskog, 1995, pp 32).

Preparing the ground also involved the reduction of staff. The size of staff was reduced by 50% just prior to handing over to the concessionaire.

Phase Two: Implementing Change The second major phase of the change process is implementation. During this phase actions are taken to achieve the vision and the change agents involved are “change implementers” (Ottaway, 1976). In the case of the Buenos Aires Concession, the implementers were Aguas Argentinas and the regulatory body Ente Tripartito de Obras y Servicios Sanitarios (ETOSS). The role of the concessionaire was to achieve the objectives set for it in the agreed contract; and the role of the regulator was to ensure that the objectives of the contract were on track to being achieved, and that external stakeholders, particularly consumers, were not disadvantaged. The selection of the concessionaire is part of this stage of the change process. In the interest of fairness and transparency, targets were set for the concessionaire on the basis of technical and financial feasibility studies; a comprehensive description of the legal environment was prepared for the information of the bidders; and an objective method for the evaluation of bids was designed. The search for bidders went

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internationally to the world’s main financial centres through a promotion campaign, and in order to aid in the selection of the most qualified it was decided to add a pre-qualification stage (Idelovitch and Ringskog, 1995). Once the pre-qualified bidders were identified, a comprehensive bidding document was developed and distributed. Five pre-qualified firms participated, and Aguas Argentinas was selected. To this point of the process, the change management model fits precisely.

Achievements (1993-2003) In the first year of operations, improvements were made on every indicator. At the same time, there were a few negative developments. There were only minor investments in urgent areas; a rate increase of 13.5% was sought and obtained; and tensions emerged in the relationship between the operator and the regulator. One year later, at the end of 1995, there were further improvements. From a loss of US $23 million in 1993, Aguas Argentinas realized a profit of US$54 million. It achieved this by decreasing expenditure and increasing revenues. The company decreased expenditure through a combination of measures: a 10% reduction in energy costs through equipment replacement, the introduction of a centrally controlled procurement system that lowered costs, a shift to a tighter inventory control procedure, and the renegotiation of contracts for the purchase of chemicals used in water treatment (Jaspersen, 1997). Aguas Argentinas increased revenues by updating its customer database, decreasing clandestine connections (nearly 100,000 were identified), focusing on large commercial users, increasing its billing collection rate from 83% in 1993 to 96% in 1995, increasing billing based on meters from 31,000 customers in 1993 to over 150,000 in 1995, and successfully negotiating a 13.5 percent increase in its average tariff based on the Government’s request to increase specific capital expenditure and to accelerate closure of OSN’s wells at serious risk of contamination (Jaspersen, 1997). By 1998 there were further gains. Actual investment was US $1.05 billion as against a target of US$1.2 billion. Consequently new connections rose by 11%, taking coverage from 70% of customers in 1992 to 83% by 1997. While debt was incurred to implement the expansion of the system, internal savings comprised an important source of capital. This was possible because of improved billing and collections, and staff reductions. Staff size was reduced from 7,666 in 1992 to 4,494 by 1998, bringing labour per thousand connections down from 8 to 1.7, comparing favourably with efficient systems internationally. By 1998, operating

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expenses dropped from about 99% of operating revenues in 1992 to 61%, similar to Thames Water in London, 58%, and EMOS in Santiago, 47% (Alcazar et al, 2000, Jaspersen, 1997). Service quality also improved. Response time to complaints about water fell from 144 in 1992 to 48 hours in 1995. For sewerage, it fell from 240 to 30 hours. In 1993 only 17% of customers received water pressure greater than the standard; in 1995 the percentage rose to 54%. The impressive achievements continued to 2002. By 2002, the population served by the sewerage system had risen from 58% in 1993 to 73%; the population served by the water system had moved from 70% in 1993 to 94% in 2000; and water production increased by 38% between 1993 and 2002 (http://www.aguasargentinas.com.ar/home.html).

Disputes While there were gains, there were also significant problems. Conflicts revolved around two issues: Aguas Argentinas as the major beneficiary of the change and, the lack of effectiveness of the regulatory body. Both of these areas of problems resulted in consumers being disadvantaged. A problem area was the frequency of rate increases. Rates had been increased in 1991, prior to privatization. In that year it was raised twice, by 25% in February, and by 29% in April. Aguas Argentinas won the bid largely on the size of the rate reduction it promised. In 1993 it fulfilled its promise and reduced rates by 26.9%. However, within a year (in 1994), Aguas Argentinas sought and was granted a 13.4% rate increase. Four years later, in 1998, it sought another. After serious disagreements with ETOSS, governmental intervention, and court hearings, Aguas Argentinas won an increase of 17% (Santoro, 2003). Hence by 1998, the rates were actually above the 1992 level (Zerah, 2001). One critic contends that these increases provided the company with excessive profits (20%) when compared with companies in other countries, another sore point (Hatcher, 2004). In the US, water companies earned between 6-12.5% in 1991; in the UK, 6-7% is considered reasonable profit; and in France, 6% is considered acceptable. Another critic notes that Aguas Argentinas’ own figures indicate it made considerable profits from 1993 to 2001 (Santoro, 2003). However, he acknowledges that the exact amount is in dispute. He claims that the Director of the regulatory agency placed annual profits between 15% and 25%. At the same time he points out that economists cited by the InterAmerican Development Bank put the profit rate as high as 40%. Claiming

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errors in the methodology used by critics in calculating profit, one company official put the level of profits at 4%. On balance, it is reasonable to conclude that Aguas Argentinas did make substantial profit. Whether these profits were unfair or unjustified is in dispute. However this dispute suggests that there was significant dissatisfaction among stakeholders. The second category of criticism relates to the weakness of the regulator and the impact on consumer interests. Two critical incidents in the first five years of the contract were indicative of the problem. The first was the tariff revision that occurred in 1994. The revision was triggered by a request that the operator undertake certain unplanned infrastructure work. The mayor of Buenos Aires wanted to build a railway and promised to resettle residents of a shanty-town that was in the way. He pressured Aguas Argentinas to build the necessary water and sewerage connections, and when the company asked for a tariff increase to cover cost, the ETOSS’ directors representing the municipality pressured the regulator for a tariff increase’(Alcazar et al, 2000).

This was an increase of 13.4%. The second incident arose over what was known as the “infrastructure charge”. Under the law consumers were required to connect to the water and sewerage system if it were within a certain distance of their premises. As a result, as Aguas Argentinas extended its system, consumers were forced to connect. Under the terms of the original concession contract they were required to pay US$415 for water connection and US$606 for sewerage. In addition to this there was the cost of internal plumbing. The poor were unable to pay these charges and so these charges became a source of resentment. The operator sought to assist through low interest loans, but even so, by the end of 1996 arrears amounted to US$30 million. The operator then decided to suspend service expansion, triggering action from the regulator (Zerah, 2001). The government decided to bypass the regulator and hand the dispute to two federal agencies. They reached an agreement with the operator in August 1997 that significantly altered the original contract, seemingly in favour of the concessionaire. The agreement had the following features (Zerah, 2001; Alcazar et al, 2000): A bimonthly Universal Service and Environmental Improvement (SUMA) charge, payable by all consumers irrespective of the date of connection, replaced the infrastructure charge. This charge was unpopular among the middle classes. Connection charges for water or sanitation was

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reduced to US$120, repayable over five years in interest-free instalments averaging US$4 per month. Controversially some of Aguas Argentinas’ contractual obligations for expansion of the system were reduced. Fines imposed by the regulator for failure to reach agreed investment targets were cancelled; and thereafter the concessionaire was to be paid in advance for service expansion rather than upon completion. This agreement effectively made a mockery of the regulator’s role and gave the concessionaire significant advantage in its relationships with the regulator and therefore with other stakeholders. Eventually in 1999, the entire contract was renegotiated and critics complain that this new contract favoured Aguas Argentinas (Santoro, 2003). Then, in 2001, the Argentine government agreed to yet another rate hike, this time one of 9.1%. However, the major crisis was yet to come. The entire process began to fall apart in the same year, 2001, when the Argentine economy collapsed. This event triggered considerable social and political upheaval. In the midst of these events, Aguas Argentinas demanded that the Government guarantee the company an exchange rate of one dollar per peso to pay its external debt. When the demand was refused, the company asked for 42% rate increase to compensate (Santoro 2003). The government again refused. Eventually, the dispute reached the International Centre for the Settlement of Investment Disputes of the World Bank, where it still is. There are likely to be good arguments on both sides of these disputes, but their very existence indicate that stakeholders had not grown comfortable with the concessionaire.

Phase Three: Adoption In long term change projects, the adoption phase tends to overlap with implementation. In this phase stakeholders begin to use the outputs of the new system, and the new ways of doing things are anchored and reinforced. The change agents in this phase ensure that the system does not revert. Those within the focal organization work to ensure the new systems and procedures are practiced; and the users of the outputs contribute to reinforcing the new by their patronage. In Buenos Aires there has been some “adoption”, but the process still has a long distance to go. In fact, the World Bank (http://ppi.worldbank.org/) describes the Buenos Aires Concession as being ‘distressed’ and it is clear that the process broke down during implementation.

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Discussion and Conclusions Undoubtedly, Aguas Argentinas improved the water supply and sewerage services in Buenos Aires. But the concession cannot be deemed a success, considering the various changes to the original contract favouring the concessionaire, the conflicts with the regulator, the controversial rate increases, claims of excessive profits, and the dispute with the Government, now the subject of international arbitration. How is this failure to be explained? One way is to take an ideological position and attribute the failure to the profit motive. From this point of view, profits will always override all other considerations; and consequently, no privatization arrangement can be found that will result in an equitable distribution of benefits and sacrifices among stakeholders. Another way is to use the change management model as a diagnostic tool. To do this, one must first be clear on the precise change that was being attempted in Buenos Aires. It is the premise of this researcher that the change at issue was not the moving of the responsibility for managing OSN from the government to the concessionaire; the change attempted was from a water sector that is performing poorly to one that meets international best-practice standards. The government of Argentina through the concession privatized production in order to achieve that change. In this context the concessionaire is a hired expert that can bring efficiency to the system. In Ottaway’s words, the concessionaire is an external change agent. It is reasonable to conclude that the planners in Argentina did not define the change in this way. They understood privatization to be an end in itself. Hence to them the change process was completed when the concessionaire took charge. They expected that thereafter with a few safeguards in place an efficient system was inevitable. These conclusions can be drawn from the facts of the case. The planners only used change strategies appropriately up to the time the concessionaire took over the company. One must also be clear on the system that was being changed, and Mintzberg’s model of the influencers that operate in and around organizations can assist. The water supply and waste water sector is a complex system, and a water supply and sewerage company while being central to the system is not the totality of it. All of the influencers, particularly consumers, whether organized or unorganized form part. Given the relationship between potable water and life itself, every consumer is permanently bound to the system, and therefore has a relationship with the supplying company that is fundamentally different

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from his relationship with almost all other suppliers of goods and services. If this is the case, then any major change must be planned and implemented with this total system in mind. Following from this point, we must consider the implications for stakeholder management. This leads to another theoretical model, that is, Lewin’s view that change is a three-stage process. If this is the case, then stakeholder management is required during each stage. In the first phase, consensus building among stakeholders in and around the utility is the task. In the second phase, the challenge is different. In this period the system is traversing an uncomfortable zone. It has left the comfort of the old behind, but the desired future has not yet materialized. A pertinent analogy is of Moses and the Israelites in the desert. The challenge here is to ensure that stakeholders share the benefits and costs of the on-going changes equitably, to celebrate and consolidate short term achievements, and to communicate to all stakeholders with timeliness and appropriateness on matters of concern. In this regard there must be an honest realism in the way the process is presented in the first stage of the change. For example, in Buenos Aires consumers were led to believe that tariffs would not rise rapidly during the period of the concession. Instead within a year tariffs began to rise. Hence the discontent that followed. This leads to the next point. An unexpected event was the reason for the first rate increase; and a traumatic unforeseen event, the collapse of the Argentine economy, led to the almost total breakdown of the concession. The assumption of the authors of the contract appears to have been that the unexpected is the exception. In fact the uncanny and untimely surfacing of the unexpected makes nonsense of contracts of this kind. It is probably more accurate to assume that the unexpected is the rule. Chaos and complexity theorists make this point. It seems clear that to manage the implementation stage, one needs more than a contract. One also needs basic guidelines for stakeholder management. For example, a key guideline might be the equitable distribution of the benefits and costs amongst stakeholders as the process proceeds. How might this work in practice? For example, if a tariff increase is necessary in order to meet reasonable operating costs and to contribute to capital investments, and if such a tariff is unbearable for the consumer, then other means of rewarding the concessionaire and raising capital could be found; alternatively, some means of directly assisting vulnerable groups could be used. A regulator cannot manage all these matters. The regulator has a role in implementation, but there is need for another arm of the state. Here

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Kotter’s recommendations can assist. He states that it is essential to have a guiding coalition (his phrase) to manage change through all phases. It must have its eyes firmly set on the long term vision, or Promised Land, but like Moses, it must manage the exit from Egypt, and the forty years in the Desert. In Buenos Aires there was no guiding coalition. It seems that for all of these reasons, the change process derailed during implementation. And so one returns to the questions with which one began, that is, can the change management model be used to successfully privatize utilities, and can it be used as a diagnostic tool? To both questions, the answer is a tentative, yes, but it is a work in progress. The author is pursuing these ideas in on-going research.

References Adam, Christopher, Cavendish, William, and Mistry, Percy S. (1992). Adjusting Privatization: Case Studies from Developing Countries. London: James Currey Ltd. http://www.aguasargentinas.com.ar/home.html Alcazar L., Abdala M., and Shirley M. (2000). The Buenos Aires Concession. Policy Research Working Paper No. 2311. Washington D.C.: The International Bank for Reconstruction and Development/ The World Bank. Andic, Fuat M. “The Case for Privatisation: Some Methodological Issues” pp 35- 47 in Gayle, D.J. and Goodridge, J.N. Editors. (1990). Privatization and Deregulation in Global Perspective. New York: Quorum Books. Baptiste, Roland. “The Transformation of the Postal Services of Trinidad and Tobago”. Public Administration and Development, 24. 2004. pp 385-396. Donaldson, D. and Wagle, D. (1995). Privatization: Principles and Practice. International Finance Corporation: Lessons of Experience Series. Washington D.C.: The World Bank. Gayle, Dennis J. and Goodrich, Jonathan N. Editors. (1990). Privatization and Deregulation in Global Perspective. New York: Quorum Books. Guislain, Pierre (1997).The Privatization Challenge: A Strategic, Legal, and Institutional Analysis of International Experience. Washington D.C.: The International Bank of Reconstruction and Development/World Bank. Hacher, Sebastian. “Argentina Water Privatization Scheme Runs Dry”. Corp Watch. Feb. 26, 2004. http://www.corpwatch.org/article.php?id=10088.

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Hanke, Steve H., Walters, Stephen J.K. “Privatization and Public Choice: Lessons for the LDC’s” pp 97-108 in Gayle, Dennis J. and Goodrich, Jonathan N. Editors. (1990). Privatization and Deregulation in Global Perspective. New York: Quorum Books. http://www.arguasargentinas.com.ar/lagros2.html Idelovitch, E and Ringskog, K. (1995). Private Participation in Water Supply and Sanitation in Latin America. The International Bank for Reconstruction and Development/World Bank: Washington D.C. Jaspersen, F “Aguas Argentinas” pp 15-27 in Fitchett, D., Jaspersen, F., Pfeffermann G., Karmoklias, I., Glen, J. (1997). The Private Sector and Development: Five Case Studies. Washington D.C. The International Bank for Reconstruction and Development/World Bank. Kolderie, Ted. “The Two Different Concepts of Privatization” pp 24-34 in Gayle, D.J. and Goodridge, J.N. Editors. (1990). Privatization and Deregulation in Global Perspective. New York: Quorum Books. Kotter, John. (1996). Leading Change. Boston: Harvard Business School Press. Lewin, Kurt. (1951). Field Theory in Social Science. New York: Harper & Row, pp. 228-29. Megginson, William. “Privatization: Effects and Management of Sale of State-Owned Enterprises”. Foreign Policy. Spring, 2000. http://www.findarticles.com/cf_0/m1181/2000_Spring/61640247/print. jhtml Mintzberg, Henry. (1983). Power in and Around Organizations. Englewood Cliffs N.J.: Prentice-Hall, Inc. Ottaway, R.N. (1976) “Proposed Taxonomic Classification of Change Agents”. 2nd Edition. Psychology Group Papers, Department of Management Sciences, University of Manchester Institute of Science and Technology. Prizzia, Ross. “Privatization and Social Responsibility: A Critical Evaluation of Economic Performance”. The International Journal of Public Sector Management. Volume 14 No. 6. 2001. pp 450-464. Rivera, Daniel. (1996). Private Sector Participation in the Water Supply and Wastewater Sector: Lessons from Six Developing Countries. Washington D.C.: The International Bank for Reconstruction and Development/The World Bank. Santoro, Daniel. (2003). “The Aguas Tango: Cashing In On Buenos Aires’ Privatization”. The Center for Public Integrity: Investigative Journalism in the Public Interest. Feburary 6, 2003. http://www.publicintegrity.org/water/report.aspx?sID=ch&rID=50&aI D=50

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Shaikh, Hafeez. (1996). Agentina Privatization Program: A Review of Five Cases. Washington D.C.: The International Bank for Reconstruction and Development/The World Bank. Silva, Gisele, Tynan, Nicola, and Yilmaz, Yestim. 1999. “Private Participation in the Water and Sewerage Sector – Recent Trends” in The Private Sector in Water Competition and Regulation. Editor: Susan Smith. Washington D.C.: The International Bank for Reconstruction and Development/The World Bank. Treisman, D. “Cardoso, Menem, and Machiavelli: Political Tactics and Privatization in Latin America”. Studies in Comparative International Developments. Volume 38 No. 3. Fall 2003. pp. 93-109. Veljanovski, Cento. “Privatization: Progress, Issues, and Problems” pp 6379 in Gayle, Dennis and Goodrich, Jonathan. Editors. (1990). Privatization and Deregulation in Global Perspective. Quorum Books: New York. World Bank. (1993). Argentina’s Privatization Programme: Experience, Issues, and Lessons. The International Bank for Reconstruction and Development/World Bank: Washington D.C. —. Private Participation in Infrastructure Database. http://ppi.worldbank.org/PP12/Reports/Data/4sector.html —. Private Participation in Infrastructure Database. http://ppi.worldbank.org/ Yin, Robert K. (1994). Case Study Research: Design and Methods. Second Edition. Sage Publications: Thousand Oaks. Zerah, Marie-Helene. (2001). “The Buenos Aires Concession”. Water and Sanitation Program-South Asia. New Delhi. http://www.wsp.or

CHAPTER EIGHT PUBLIC PRIVATE PARTNERSHIPS: APPLICABLE LAWS AND GOVERNANCE PRINCIPLES S. BURLESON

Several developments, like the shift in economic policies of many governments from direct market players to a more facilitating and controlling approach, the development of new principles for trade and trade related activities, the decreasing availability of public funds and the growing importance of private capital have all led to the development of new business structures, whereby public and private parties work together. Both risk and rewards are being shared and private capital and technology are being exchanged for enlarged access to business opportunities. The last decennia showed an increase of the so called Public-Private Partnerships, especially in infrastructure, transport and sectors where investments are relatively high These business ventures are created to deliver formal public tasks in sectors where neither the public nor the private sector alone would be as successful. Given the scarcity of public funds it is expected that there will be a growing use of this form of cooperation. It is important to note that risks are being shifted and with that, part of the responsibilities. Responsibility means participation in public policy-making processes, an activity which until shortly was primarily the prerogative of governments. So clearly, apart from the much promoted benefits, some clarification is needed with regard to the transparency, accountability and the governance of PPPs and their impact with regard to the principles of fairness, national treatment and free market competition. Questions include the following: What regulatory and governance frame work is needed to guide the market in general and the PPPs themselves? Must these cooperation ventures be publicly accountable and are there enough

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democratic means available to exercise public control? Is the balance in the market being affected and what impact do they have on free and fair market access by other competitors? Numerous efforts have been put into formulating policies and guiding principles. Many studies indicate clear relations between the laws and regulations of a country and the successful operation of business. But the question about the specific positioning of PPPs with their hybrid constitution within those governance principles for both the public and the private sector, is not yet fully disclosed. The question, then, is what is applicable and what scheme must we choose? This paper intends to elaborate on the legal position of PPPs and discuss the applicability of the existing legal and governance principles. It does not intend to discuss the existing regulations in detail but rather to highlight the possible effects of the PPPs on the way the public party, the business venture itself and the market as a whole can be guided.

The Emergence of Public-Private Partnerships: PPPs PPPs are seen as a new form for governments to cooperate with the private sector and to attract private funds for the development of projects that they can not viably develop on their own. Studies show that already in the 1850s Brazil had its first experience with PPPs, when the Imperial Government and the State of São Paulo, under the Regima da Garantia dos Juros, granted subsidies to promising railway-projects1. The accelerated use of PPPs was seen in the late 1970s in the United States (USA), merely in response to poor government performance and the view that the State had reached its financial limits in the provision of public services.2 PPPs were initially introduced as an acceptable alternative to privatization. Developments later in Europe established the view that PPPs can help solve the problem of shortage of public funds, especially to carry out projects that were deemed important for European competitiveness and growth. PPPs were embraced for trans-European transport and also Private Financial Initiatives.

1

Pitou van Dijck and Simon den Haak: Troublesome Construction; IIRSA and Public-Private Partnerships in Road Infrastructure .N.d. Cuadernos del CEDLA 20 ( Amsterdam: Centre for Latin America and Documentdo). 2 Alison Mohr. 2004. Governance through “Public-Private Partnerships”: Gaining Efficiency at the cost of public accountability? University of Westminster. Centre for the Study of Democracy www.ifz.tugraz.at/index_en.php/filemanager/download/311/Mohr_SA%202004.pdf

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Definition of Public-Private Partnerships PPPs can be described as a cooperation between government agencies and the private sector to carry out or finance infra structural works or to provide services. The Canadian Council for Public Private Partnerships defines PPPs as …a cooperative venture between the public and private sector, built on the expertise of each partner that bests meets clearly defined public needs through the appropriate allocation of resources, risks and rewards.

There is no single definition of Public Private Partnerships, yet, they are being presented as a key element to promote development. One factor that has accounted for the rise of PPPs has to do with the fact that governments today are being confronted with rising demands from the society for better and cheaper public services. However, in many instances, they lack sufficient public funds, technology and managerial skills to deliver these services. In many cases, too, it has been suggested, the private sector can deliver these services and also expand their business opportunities. PPPs can therefore be found especially in sectors where large investments are needed but public finance is not readily available. It is also beneficial for the private sector to enter these arrangements since in a number of cases this sector is not willing to take all the risks plus transfer of capital and technology in exchange for low returns, for instance in infrastructure and some public services. Tasks that were traditionally delivered by the government are now being carried out by or in cooperation with the private sector.

Characteristics of Public-Private Partnerships PPPs are characterized by the long term cooperation between a government party and a private party regarding several aspects of the project to be carried out. The public party sets the goals and holds control of quality, standards and performance, while the private party delivers the largest part of the finance plus technology and managerial skills. Sometimes the government takes part in the finance while some schemes are such that the user fees of the end users go directly to the private party. Other important key elements are: 1. sharing of risks and responsibilities; the risks are divided between the parties, according to their capacity on a case by case basis; 2. sharing of rewards; sometimes the rewards go directly from the

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end users to the private party;

Why governments may choose PPPs Governments have different options to guarantee that public tasks are being carried out, for instance, decentralization within the State sector, procurement of concessions and contracts, privatization of State Owned Companies or establishing of Public-Private Partnerships. Different situations will dictate different solutions and it should be decided per case what is the best option. The lack of public funds, however, drives governments to “shift off" risks and attract private capital. On the one hand, the traditional procurement process and bidding does not always delivers interested and willing private partners. On the other hand, privatization is not always considered an economically or politically correct alternative. That makes PPPs, with their feature of shared risks a valuable option, especially in sectors were the profitability is relatively low compared to the large investments needed. The difference with the traditional procurement process is that PPP contracts are normally more flexible. They regularly have more room for innovations by the private sector, better accommodation for risk sharing between the public and the private parties and more possibilities for "trade-offs" when the complexity of a project requires discussions and negotiations. Also it is easier to attach additional private tasks regarding finance, maintenance and operation and to introduce quality based rewards; they include a better benchmark to compare qualifications in a selection process. We may summarize that there are some possible benefits when governments enter into a Public-Private Partnership, such as: 1. enlarged access to private capital and modern technology; 2. better access to finance; 3. sharing of risks and responsibilities; 4. getting "value for money"; 5. getting managerial efficiency; 6. lessening pressure on the government budget; 7. accelerated implementation of high priority projects; 8. reduction of the size of the government; Of course there are pre-conditions for the development of PPPs. Clearly, the government must be committed to share their power and there must be private enterprises available, willing to undertake the defined tasks and willing to share the risks and responsibilities. It is also important

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to maintain good contractual discipline and offer strict performance on both sides. It is obvious that the availability of capital is also of eminent importance. So, a developed capital and factor markets and a good functioning market mechanism will be supportive. The existence of a good regulatory frame work will also create a better environment for the development and the successful operation of PPPs. Studies have showed that there is a relation with a country's legal structure, the development of the capital market and its access to finance and that there are differences in investor protection related to the historical legal family that a country belongs to.3 The relation between the legal structure and the development of PPPs was not included but it may be expected that this will have an impact. What is not so clear, however, is what procurement process is needed to establish PPPs or what governance principles must be put in place.

Legal forms of Public-Private Partnerships PPPs as business structures cover a wide range of possible legal forms, from joint ventures and concessions to outsourcing and sale of shares in State Owned Companies (SOEs). They can be divided in two main categories namely: 1. Contractual partnerships; those are solely based on a contractual relationship between the parties. Under this category we find cooperation schemes whereby a private party delivers a service or establish woks instead of the public party, or maintain a service, all under control of the latter. The private party gets paid directly from the user charges, or by the public party. 2. Institutionalized PPPs; here a legal person is established, which is jointly owned by the public and the private party. The jointly owned legal person can be established as such or can emerge when shares in an existing State Owned Company are transferred to a private party afterwards. The objective is that the benefits are well balanced. Public-Private Partnerships must ensure the delivery of governments services in the most economical, effective and efficient way. On the other hand they must create opportunities for the private sector through the stimulation of competitiveness and initiative. It is in the best interest of all parties that both risks and returns are shared appropriately between the parties. In 3

Rafael La Porta, Florencio Lopez-de-Silanes, Adrei Shleifer and Robert W Vishny.1997. Law and Finance.www.journals.uchicago.edu/cgi-bin/resolve?JPEV 106p 1113PDF.

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essence PPPs endeavours sharing of risks. They also give the government access to finance and technology which may result in a better price-quality ratio. Considering the above we may conclude that PPPs can foster the development process in general. Their success, however, depends on much more than commercial success in the sense of "profit maximization". We may distinguish several levels of relations that derive from the conduct of PPPs. For instance, there are internal relations between the public and the private party, relations between the public party and the State sector as a whole and between the entity and the market. It is important to create regulatory framework to guarantee that all those relations are safeguarded. Summarizing, we see that the use of PPPs is increasing. But both the public- and private sector needs to comply with several governance principles. Given their hybrid form it is important to establish what laws and regulations are governing PPPs. Also important are the external effects on the democratic process of public accountability and the internal process of corporate governance.

The concept of governance The concept of governance as it implies the formulation and exercising of public policy is much debated. But the emergence of new corporate structures which are hybrid structures that are used for the delivery of public services create a more complex governance environment. The way in which public policy is now being formulated, and the implication for the way in which public services are delivered for the process of democratic engagement, and for the functioning of the market as a whole, needs more research. Some research was done by Skelcher on the functioning of hybrids.4 Hybrids can be all sorts of organizational arrangements that use resources and/or government structures from more than one existing organization and therefore include PPPs.5 He states that apart from the Organizational Performance of the entity, two dimensions are of importance, namely: 1. The Democratic Performance: the arrangements for the legitimacy of the entity, consent, decisions and actions and exercising accountability over its board; 4

Chris Skelcher: Hybrids: Implications of New Corporate forms for Public Service Performance; University of Birmingham; 2004. 5 B. Borys and DB Jemison 1989. “Hybrid Arrangements as Strategic Alliances: Theoretical Issues in Organization Combination.” Academy of Management Review, No. 14, 234 – 39.

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2.

The Government Performance: the overall functioning of the governmental system. He further argues that hybrids can increase the performance of the State sector as a whole, but they may lead to complex governance systems that can impact on the "democratic performance" of the entity. This emphasizes one of the main questions to be answered here, namely the question of public accountability and governance of PPPs.

Governance Principles International developments such as the creation of an overarching system of international trade and trade related economic activities, the growing importance of private capital that can now choose between several investment options and the much debated role of the State and governments to pursue sound and efficient policies when spending public money have all led to the formulation of several sets of principles. These principles deals with issues like transparency, fairness, equality, efficiency, economy, accountability, due process and competition. They have to do with the way business is conducted, whether public or private, whether there is responsibility towards all stakeholders and all end up in the cluster of "governance principles". Governance principles are on different levels such as the international, regional and national level and they cover the dealings of public and private entities. They are adopted in several policies such as: ¾ Good Governance; the government must conduct a sound policy in a transparent and democratic way; ¾ Government procurement; the government must be transparent and publicly accountable for all spending of public funds through the democratic means and the fiscal control system; ¾ Corporate governance; business performance must be commercially sound and conducted in a way beneficial to all stakeholders, directors must be accountable and the business must be socially responsible. The issues on governance are the topics much studied. But again we may see the dilemma when we consider PPPs as being hybrids with both public and private elements.

Governance in the case of PPPs Until now we have focused on the PPPs as business ventures. But, when PPPs are seen as autonomous networks with interdependent and

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interlinked parties, the focus shifts from the institutions and their organization towards the governance process. We can identify the following governance schemes that may be applicable: A. Governance of PPPs: the "governance perspective" meaning both government procurement and the democratic means to secure public accountability; here the focus is on the relation with the government and the way it keeps the market as a whole in balance; B. Governance within PPPs: corporate governance; here the relations between board and shareholders are valued, besides measuring the overall performance of the entity and its competitiveness. The influence of government as a shareholder is under discussion.

Government Procurement: the Governance Perspective6. The "governance perspective" of PPPs can be symbolized by principles in the procurement law and regulations. It focuses on the democratic procedures to assure that public responsibilities are conducted in a proper way and that the public in general have access to information and have means to control government spending and acceptance of commitments. But then it challenges the traditional concept of the autonomous State and introduces a new dimension of cooperation. State Sovereignty becomes oppressed by supra national powers and multi lateral organizations on the international level and on the national level by sub-national governments and participating institutions that now take part in public service delivery. For in the "governance approach" those institutions take part not only in policy implementation but also in decision making as well, creating a need to develop new modes of governance. Participation in decision-making means that responsibilities have to be shared. This raises the question of accountability, but given the interdependency of the public and private party this becomes very complex and uncertain. This collaboration between public parties who are always publicly accountable and private parties who are not, is very challenging. The question is: will PPPs lead to a diffusion of public accountability for the public sector or will private participation create a way to provoke more accountability from the private sector? Mohr7 formulated a number of concerns as follows: 6 7

Mohr: Governance through “public private partnerships. Mohr: Governance through “public private partnerships. Op citi

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1.

Do PPPs have negative consequences for accountability, based on the premise that public control over service provision is reduced? 2. Does the extended period of some PPP contracts weaken the capacity of the public in general to influence policy directions? 3. Does private sector delivery of public services using public funds lack transparency compared to public sector delivery? Some scholars argue that the use of PPPs opens up new channels for participation while others are very concerned with the diminishing boundaries between political jurisdiction and market forces. Pierre (1998) argues that this governance structure easily “displaces political accountability” and “allows for market-based actors to penetrate the domain of the political.” Also the officials of PPPs are not elected. Transfer of authority to such institutions without them being publicly accountable will hamper the democratic process even more. Some evidence is being given that the principles of transparency and fairness have been weakened by the creation of management structures for public services, in an institutional link with the private sector. (Hebson et al 2003). Mohr therefore argues that: …while achieving good governance in PPPs is important for economic success and social development it requires obeying certain rules, processes and behavior that affect the way in which powers are exercised, with particular regard to: (1) transparency and openness in the PPP process; (2) public accountability and scrutiny; (3) achieving effective dispute resolution systems; and (4) safety and security.

Decentralization is in fact one of the key characteristics of PPPs because it implies a shift in decision-making but this process is not always accompanied by the necessary democratic rules and regulations. Mohr discusses in her paper two large Public-Private undertakings, namely the London Underground Public Private Partnership and the Copenhagen Metro and concludes, …that both the UK and the Danish PPPs are characterized by the occurrence of formal public accountability procedures in the administrative domain, but where decision-making processes are conducted behind close doors in the absence of any salient public participation.

Here public accountability had to be applied "top-down" in a formal way of representative democracy. However, the unavoidable transfer of some risk and responsibilities continue to pose a serious challenge to transparency and public accountability. Both undertakings discussed show

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a relatively low level of transparency and openness. They either have a very: …complex web of accountability that is hardly accessible with normal accountability mechanisms, or the public decision-making is completely banished and critical public debate is only possible after decisions had been taken or implemented.

Possible solutions: the EC Green book on Procurement for PPPs There is an increasing use of Public Private Partnerships in Europe. Apart from the reasons already mentioned, like access to private capital and technology and relief from budgetary pressure, PPPs were embraced by the public sector as a solution to realize fast development of transEuropean transportation, which is considered important for European integration and competitiveness. The increasing role of PPPs led to the question of whether European Community rules adequately achieve the objectives of the Internal Market. To that extent, a green paper on “Public Private Partnerships and Community law on Public Contracts and Concessions”8 was formulated to explore how best to deal with the challenge of PPPs and to assess if the legal framework on the Community level needs to be clarified, complemented or improved when it comes to awarding PPP contracts and concessions. The main purpose of this law is: …to create an Internal Market in which free movement of goods and services and the right of establishment as well as the fundamental principles of equal treatment, transparency and mutual recognition are safeguarded and value for money obtained when public authorities buy products or mandate third parties with performing services or works.

The green paper distinguishes between contractual PPPs, based solely on the contractual links between the different parties and institutional PPPs, being a legal person jointly owned by the public and the private party. This distinction may lead to several different legal constraints. In the case of contractual PPPs possible legal constraints may arise with regard to the selection of the private party. The selection criteria and the formulation and implementation of the contract must not conflict with the 8

Green Paper on Public Private Partnerships and Community Law on Public Contracts and Concessions; Commission of the European Union; Brussels 2004, and the communication thereon; Brussels 2005.

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right of establishment and free movement. The green paper states that in case of contractual PPPs: 1. The provisions in the contract should not conflict with the public goals 2. The term of the contract should not exceed the amortization period of the project 3. Sharing of risks should be on the basis of the capacity of the parties 4. Substantial changes in the provisions are considered to establish a new contract, except only the case of fundamental changes of circumstances 5. “step-in rights" for financial institutions should be conditional. In the case of institutional PPPs a problems may arise when national laws permits the participation in the economic process before finalization of the establishment. For instance, according to the Suriname Commercial Code9 and the Dutch Private Law Statute on Legal Persons10 it is possible to conduct legal actions in the name of a legal person before the incorporation is finished. The final establishment will be then made only after granting of the contract to the then not yet established legal person. This may jeopardize the free competition. Also the lifetime of a legal person is in fact indefinite so it will extend the amortization period of the project. The green paper concludes that: 1. the selection of a private party to establish an institutionalized PPP must be in accordance with the rules for public procurement; 2. the public party may not extract excessive rights from its position as a shareholder, beside the normal provisions of company law; Thereby the principles of equal treatment, competition and free movement should be implemented at all times. In essence, the green paper suggests an extensive implementation of the Law on Public Contracts and Concessions and introduces the following solutions: 1. All PPPs’ structures are qualified as public contracts or concessions and are subject to the Community law on Public Procurement and Concessions; 2. A new award procedure is introduced for complex public contracts namely "the Competitive dialogue", under which there is an innovative bidding procedure with the possibility of consultations upfront. This can be used for some PPPs; 3. There are stricter instructions for the fiscal accounting regulations 9

Suriname Commercial Code 1936; S.B. Dutch Private Law

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for the accounting of assets of PPPs in the national accounts The conclusion is that PPPs are being treated as public contracts or concessions. But there is much more clarification needed to explain when and how the Community Law on Public Contracts and Concessions is to be applied. The European Commission tries to fill the gaps through extended implementation and instructions. Also the existing Public Procurement law is being fine-tuned to cover most of the PPPs as being public contracts, while institutional PPPs could be covered under the European company to be introduced. Much is being done to guarantee that the principles of the Internal Market are being implemented. The main route that the European commission follows is that of the Public Procurement. The complexity that arises with regard to the democratic performance and public accountability was, however, not dealt with sufficiently in the Green Paper and neither were corporate governance rules discussed. In the collaborations following the green paper some were of the view that a stable legal environment for the award of concessions on EU level is needed. This will, in particular, reduce transaction costs because of decreased legal risks and may result in enhanced competition. This will then stimulate PPP undertakings. Meanwhile the European Court of Justice in a case against the Government of Spain made it clear: …that relations between public authorities, their public bodies and, in general manner non-commercial bodies governed by public law could not "a priori" be excluded from public procurement law.11

The court had earlier decided that when a public procuring party takes part in the joint undertaking, even if the latter is legally distant from it, the Community Law on public contracts and concessions is applicable12. This only differed in case of "in-house relations", when the amount of control exercised by the public party is similar to the control it exercises over its own departments, while at the same time the entity carries out the essential part of its activities with the controlling legal authority.

Corporate Governance In discussing the characteristics of Public Private Partnerships, we noticed that there is a rather complex governance environment. After 11 12

Judgment of ECJ: Commission vs Spain; January 2005; case C-84/03. Judgement of ECJ: Teckal,; November 1999, case C-107/98.

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suggestions about the application of procurement laws, it is necessary to focus on the PPP as a commercial undertaking with the goal of profit maximization, even though there is a public party involved who is interested in value for money when delivering public services. The concept of Corporate Governance is getting more and more attention, though some say it as old as Shakespeare's "Merchant". The reasons for the growing interest were some sudden events: 1. The wave of financial crisis in the late ‘90s in Asia, Russia and Brazil; the behaviour of corporations affected entire economies; 2. Large Corporate Governance scandals in the United States and Europe; The discussion on Corporate Governance issues becomes more important as globalization evolves and capital markets get more complex. There is a much more competitive environment for companies. Private capital owners can chose now where to invest and will only go where there is not only high return but also low risks. Since one of the largest necessities for a secure investment climate is the existance of a good governance framework, it is important to manage a company in a way that the performance is high while the rights of all participants are being taken care of. Shareholders must feel protected and important information must be disclosed. The Board must take a serious position in supervising the executives.

Definition of Corporate Governance There are several definitions of Corporate Governance. Some focus on the behaviour of corporations and some on the normative framework. Sir Adrian Cadbury, one of the founding fathers of the Corporate Governance Discussion in the United Kingdom, describes Corporate Governance as the system by which companies are directed and controlled.13 Traditionally the focus of Corporate Governance had been on the protection of shareholder's interests and the separation between management and control. Nowadays the behaviour of corporations and the relation with several stake holders are also taken into account. Also the different types of corporations receive attention, instead of only large listed ones like before. Most of the research on Corporate Governance issues still focuses on the large, listed companies. The Caribbean companies, however, are dominantly SME's and closely owned companies. Other points to consider 13 (Cadburry Committee) Sir A Cadburs. 1992. Committee on Financial Aspects of Corporate Governance. HMSO: UK

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includes the development towards one single economic space (CSME), the diversity in legal systems, the necessity to create greater competitiveness of companies, the need to attract investment and the necessity to enter the international capital market. In addition, it should be noted, that PPPs is a collaboration between the public and the private sector which means that there may be conflicts between the government's public tasks and the drive of every entrepreneur namely profit maximization. Now the question is, if and to what extent cooperative ventures between the public and private sector must have suitable governance rules? How can we ensure that policies of higher productivity and efficiency will not undermine the position of the government as keeper of public goods? What position does the State party take as a shareholder? What if the government party is too weak or too strong as a shareholder? To answer those questions it is necessary to focus on introducing good but also suitable Corporate Governance rules.

Corporate Governance Principles The Organization for Economic Cooperation and Development (OECD)14 has formulated some "Principles of Corporate Governance." These principles were endorsed by the OECD Council of Ministers and became an international benchmark for companies, governments, investors and other stakeholders. They are being used at an international level by the Financial Stability Fund and are also observed by the IMF and World Bank. The principles cover the following issues: 1. Ensuring an effective Corporate Governance framework; promotion of transparent and efficient market consistent with the rule of law; clear division of responsibilities among different supervisory, regulatory and enforcement authorities; 2. The rights of shareholders and key ownership functions; protection of shareholders rights and facilitation thereof; 3. The equitable treatment of shareholders; equal treatment of all shareholders including minority and foreign shareholders and access for all to redress violations of their rights; 4. Disclosure and transparency; recognition of the right of stakeholders as established by law or agreement, active policy towards creating social and economic welfare and sustainability of financially sound enterprises; 5. The responsibilities of the Board; timely and accurate disclosure 14

OECD Principles of Corporate Governance; Paris 2004

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of all material matters of the company, especial financial situation, ownership, performance and governance.

Corporate Governance for PPPs After discussing the dilemma of the hybrid nature of PPPs and the complex governance structure that emerge we now have to find out to what extent the formulated governance principles for corporations have to be applied. The following preconditions are made: 1. Corporate Governance Principles still have a merely voluntary nature. It is through the forces of the market mechanism that bad corporate governance will lead to less access to finance and worsening of a companies market-position; 2. Corporate Governance Principles not only involves the company itself but also its operation in the market; the social responsibility of companies however is not included here; 3. PPPs with a contractual nature are excluded; here it depends on the legal structure of the private party whether corporate governance principles must be applied ; Given the cooperation of a public partner and the utilization of public tasks, this adds an extra dimension to the nature of the businesses under review and may have implications for the design of a governance framework. The choice was made to review the OECD Corporate Governance Principles for State Owned Companies15. This may throw some more light on the specific position of the State party as a shareholder and may be answer questions about the democratic performance of PPPs as discussed earlier.

The OECD guidelines for SOEs compared State companies and all undertaking of the State Sector must find a balance between their responsibility when exercising ownership functions in a company, while at the same time refraining from undue political interference in the management of the company. In order to carry out its ownership functions the State can use mechanisms already used by the private sector such as corporate governance principles. But the State may also face some specific governance challenges as we have discussed before. 15 OECD Guidelines on Corporate Governance of State-owned Enterprises, Paris 2005

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The OECD lists some distinct challenges that SOEs may suffer from: 1. undue hands-on politically motivated influence, or 2. passive or distant ownership; 3. diluted accountability; here two major reasons can be mentioned: overprotection against bankruptcy or takeovers and a complex management chain without clear identification of responsible agents; These factors make good corporate governance rather challenging. The OECD has therefore formulated a guideline for Corporate Governance for State-Owned Enterprises, SOEs, as an addition to the OECD Corporate Governance Principles. These guidelines are primarily oriented to stateowned enterprises with the following characteristics: 1. using a distinct legal form , separate from the central government; 2. having a commercial activity; the largest part of their income is from fees and sales; 3. it is not important whether they pursue a public policy or not and 4. they may be in an competitive sector or not, and most important: 5. they can be wholly owned, majority owned and minority owned SOEs. We notice that these guidelines are also applicable for enterprises that are only partially owned by the State. Though they focus on significant government control, the distance with PPPs is now narrowed down. The five Guidelines are: ¾ Ensuring an effective Legal and Regulatory Framework for Stateowned Enterprises; a level playing field in the market between State-owned and private enterprises; ¾ The State acting as an owner; a clear consistent policy to ensure that the governance of SOEs is carried out in a transparent and accountable manner; ¾ Equitable treatment of Shareholders; the State should recognize the rights of all other shareholders and offer equal access to information; ¾ Relations with stakeholders; recognition of the responsibilities of SOEs towards stakeholders; ¾ Transparency and Disclosure; high standard of transparency in accordance with the OECD Principles of Corporate Governance; A closer look at some of the principles results in a list of answers to many questions we have met earlier when unfolding the complexity of the governance structure for PPPs, as follows: 1. Strict separation between the State's ownership functions and other state functions;

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Obligations and responsibilities that are necessary but exceed certain limits should be disclosed to the public and costs should be covered transparently 3. SOEs should not be exempt from the application of general laws; 4. SOEs should face completive conditions regarding access to finance; The State should not be involved in the day-to-day management; 1. A well structured transparent board nomination process; 2. An efficient internal and external audit system; 3. Disclosure of material information on all maters described in; 4. The CG principles, such as ownership and voting structure, risk factors and risk management, financial assistance from the State. As may be observed, many of these principles cover situations that are also alike in the PPPs. They offer solutions for the questions that we have formulated earlier for several categories. These principles deal with the performance of the entity itself, the accountability of the public parties and the protection and equal treatment of all shareholders.

Governance in the CARICOM Region Some important principles embedded in the Revised Treaty of Chaguaramas are among others: 1. Free movement of capital, services; 2. Freedom of establishment; 3. National treatment and MFN; 4. Competition; 5. Fairness; The Preamble of the Treaty and the formulated policies on Most Favoured Nation Treatment, Free Movement and the right of Establishment, Services and Capital, Fairness, and the formulated industrial policy and the competition policy all indicate that the international accepted principles are also obeyed in the region. These principles are important for the enhancement of the regions’ competitiveness and may influence the access to Foreign Direct Investment. An IDB funded study of 199916 already listed "convergence towards modern regulatory frameworks" as one of the means through which the global repositioning of CARICOM could be facilitated. Moving towards OECD regulatory standards was since then being highlighted: 16 Anneke Jessen and Ennio Rodriguez. 1999. The Caribbean Community: Facing the challenges of Regional and Global Integration. IDB: Washington DC

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In search of the earlier discussed governance principles we notice the following: 1. Government Procurement: the Treaty itself does not directly address a procurement policy. Neither did the WTO when it came into existence. This was discussed afterwards. But Government Procurement is a now considered a "core element" of the operations at the domestic level and is also very important for international trade as it may diminish discriminatory procurement policies. The CARICOM Secretariat has executed a project funded by the IDB and CIDA to establish Government Procurement Frameworks in Member States since 2003. The objective is to establish a regime of regional best practice to foster the implementation of the CSME and to increase the external economic position. After a backdrop the outcome is yet unknown. 2. Corporate Governance Principals; the Caribbean Corporate Governance Forum17 has formulated draft Corporate Governance Principles for Caribbean Countries. These principles are consistent with the OECD Corporate Governance principles in following international best practices, but claim to be appropriate for the development context of the Caribbean and supportive to the integration movement within CARICOM. Again the latest position is yet unknown.

CARICOM Corporate Governance Principles The CARICOM Corporate Governance Principles focus mainly on publicly traded financial and non-financial companies. However, they can function as guidelines for privately held, family owned and state-owned enterprises. These principles find corporate governance important for countries in the Caribbean that are tying to attract financial capital and are essential to bolster the confidence and commitment of potential investors and foster corporate competitiveness. Some of the Caricom Corporate Governance Principles include: 1. equal treatment of shareholders; 2. fair treatment of stakeholders; 17

Draft Corporate Governance Principles for the Caribbean Countries: CCGF; www.ecseonline.com/ccgf_about.asp

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3.

timely and accurate disclosure of all material matters relating to the entity, including its financial situation, performance, ownership and governance; 4. disclosure of information on board members and transparent nomination process; 5. adequate risk management; 6. optimizing shareholders value should be the principal focus of the board. It is recommended that a corporate governance framework should be complimented by an effective and efficient insolvency framework and by effective enforcement of creditor rights. Also the need to establish principles for public sector accountability and governance should be recognized and implemented.

The Brazilian Case-study18 Brazil was selected for several reasons. This country has early experiences with PPPs dating from the 1850s, when the Government granted subsidies for railway projects. On the other hand, Brazil has taken an important step forward when it implemented a special law on Public Private Partnerships in 2004. It is also the largest country on the continent and therefore will have the largest share in the construction of the transAmerican interconnecting road scheme under the IIRSA program. It is already established that this immense program will be conducted with the use of Public-private Partnerships. With the use of PPPs for railway construction the government succeeded in putting down more than 20.000 km of railway tracks. This resulted in a number of benefits including the reduction of the costs for transportation of workers along with an increase in coffee beans production. Over the years, the Brazilian economy faced financial constraints. The traditional role of the Brazilian State has since fundamentally changed to a more facilitating and regulating role, trying to recruit more private participation for investment in infrastructure. To guide this process, new legislation was formulated, such as: 1. The Public Works and Procurement Law of 1993 2. Establishment of independent supervisory bodies to supervise the concession contracts. (There were many disputes between the public sector and the private parties regarding the compliance, 18 Pitou van Dijck and Simon den Haak: Troublesome Construction; IIRSA and Public-Private Partnerships in Road Infrastructure. Op citi

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regulation and supervision of the concession contracts); The Concessions Law in 1995, providing for the legal and regulatory framework for the concessions of financially vital public works. Under this policy, highway concessions were granted which were an innovative way to attract more private capital and managerial skills; 4. The PPP Law adopted by the Brazilian Congress in 2004, as the next phase towards enlarged private participation in infrastructural projects. The legal and regulatory frame work for PPPs is established by this special law. The central objective of the PPP Law is to improve the efficiency of public investment and enhance social welfare. It is based on both the Concessions Law and the Public Works and Procurement Law. By improving the regulations the government wants to create a better investment climate for the private sector. It is stressed that the ultimate goal of PPPs should be the improvement of the financial sustainability of the public sector along with socio-economic benefits of the partnership projects. Ordinary concessions, where there is no direct payment from the public to the private party, are not considered PPPs. The Law defines PPPs as concession contracts with a narrow definition which excludes projects under a certain amount, short-term project, projects with the scope only to delivery labour or equipment and projects that offer enough profit for the private sector. Some special features are: 1. Transparency of procedures and decision-making 2. Fiscal responsibility 3. Sharing and transfer of risks between the public and the private party 4. Compliance of the term of the contract with the amortization of the project 5. Mechanisms to handle public sector default in payments and guarantees to the private party to secure payments 6. Sharing with the public administration of economic gains of the private party because of reduction of credit risks 7. Conditions for granting of “step-in" rights for financial institutions 8. A retention clause for compensation at the end of the contract of possible damages of assets to be returned to the public party. Moreover, the law prescribes a competitive tendering process that can only be opened after authorization of public authorities. There is a federal PPP program under the authority of an inter-ministerial committee, which 3.

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conducts the management of PPPs. PPP projects have to be analyzed both by the Ministry of Planning to assess the economic merits of the program and by the Ministry of Planning the Ministry of Finance which will have to analyze the fiscal consequences of the project proposal. Questions considered are related to the legality, supervision, performance indicators, operational and political risks, integration of construction, operation, maintenance and finance, the capability of the public sector and the interest of the private sector. Another major issue is whether the market can deal with the risks transferred and the security of enough competition in the tendering and procurement process. It can be argued that the rationale behind the strict budgeting rules may be rather political than economical. For example, it is critical that politicians do not use PPPs to shift current expenditures and investments to the future, thereby "by-passing" public controls and removing public debt off the public balance sheet. This could threaten the confidence of the market and scare away FDI in infrastructure and other long term projects. Also if intense research is conducted early it can determine whether the project is viable and there is enough return on investment for the private sector. In that case, a PPP will not be established, and the project will have to be carried out as a normal concession, without public funding or guarantees. Even a "priority one" project, the Ferrovia Norte-Sul, was rejected as a possible PPP, when studies indicated that the return would exceed the minimum of one percent return.

Conclusions This discussion has hopefully argued that Public-Private Partnerships will become more important given the lack of public funds as well as an economic policy whereby the role of the State is decreased as a market player. Given the hybrid structure of PPP's they have to function in a very complex governance structure, whereby both the performance of the entity and democratic performance are important. Both the internal as well as the external relations are governed by governance principles and internationally accepted governance principles are imbedded in most international and regional treaties and in national legislation and voluntary codes. After discussing some of these principles such as transparency, fairness, equal treatment, accountability, disclosure, competition and the right of establishment it is clear that compliance with these principles are necessary both from a normative as well as an economic perspective. Both Procurement principles dealing with the relation of the State

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sector and focusing on public accountability as well as the corporate principles focusing on the internal relation between shareholders and the board are important. The state has to ensure in either one of these concepts that fairness and equal treatment are achieved even when value for money is one of the main targets. Also the selection and award procedures must not lead to market distortion and it must ensure that all market players get a fair chance. It is clear that corporate governance is important for investors to have trust in the operation of the market and for them to believe that their investments are safe. A regulatory framework and good corporate governance are essential means to expand international competitiveness, foster economic growth and have access to FDI funds. This is definitely the case as well for Public-Private Partnerships. Even they will need external finance particularly to attract funding for large infrastructural projects. In designing a good governance framework we can definitely learn from the experience of Brazil and others.

References Halfhide, Diana, 2005. A Feasible Governance model for the Suriname Stock Exchange. Paper presented to Stock Exchange, Paramaribo, Suriname. July 2005 A Primer on Governance and performance in Small an Medium Sized Enterprises: Yacuzzi Enrique, CEMLA. Communication from the Commission to the European Parliament on PPP and the Community Law on Public Contracts and Concession, Brussels 2005 Corporate Governance and Development: Stijn Claessens, Global Corporate Forum, Focus I, 2003. Leora Klapper, 2002. Corporate Governance, Investor Protection, and Performance in Emerging markets. The World Bank Development Research, Group Finance, World Bank Research Working Paper No 2818. Green Paper on Public-Private Partnerships and Community Law on Public Contracts and concessions. 2004. Commission of the European Community; Brussels. Mohr, Alison. 2004. Governance through Public-Private Partnerships: Gaining Efficiency at the cost of Public Accountability? University of Westminster, Centre for the Study of Democracy. www.ifz.tugraz.at/index_en.php/filemanager/download/311/Mohr_SA %202004.pdf.

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Handboek Corporate Governance: Peik S.C. et al; Kluwer, Deventer 2002 Public Private Partnerships: the Government's Approach: London 2000 Her Majesty Stationary : London The Dutch Corporate Governance Code: Beginselen van Behoorlijk Ondernemingsbestuur en "Best Practice" bepalingen; Commissie Corporate Governance, December 2003; Commissie Peters, The Netherlands.

CHAPTER NINE CREATING A REGULATORY FRAMEWORK FOR AN INDEPENDENT REGULATOR– THE TRINIDAD AND TOBAGO EXPERIENCE ALBERTINA SALINA

There is no foolproof formula for ensuring the independence of the regulator and it is even more challenging to set up an independent agency in countries which have a limited tradition of independent public institutions and limited regulatory experience and capacity. This is the context in which the Telecommunications Regulator was established in Trinidad and Tobago. This paper examines the approach adopted by Trinidad and Tobago in creating a legal framework for regulating the telecommunications sector with a view to determining whether the objective of independence was achieved, as defined in accordance with a set of criteria which have been developed based on international best practices. In adopting an institutional structure for the local Regulator the Government of Trinidad and Tobago has adopted the minimal approach of the World Trade Organisation that interprets “regulatory independence” as independence from the influences of providers of services only. However, the concern of the telecommunications experts and the focus of most of the scholarly works and country case studies has been the relationship of the Regulator with the political authorities, which remains a contentious one. A review of the Telecommunications Act 2001 however, suggests that the governance structure falls short of the established criteria for independence.

The role of legislation in the implementation of policy Legislation is a major tool for the implementation of Government policy and while it may not be necessary in most instances, to introduce

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legislative measures to address policy problems it is considered imperative to legislate to clarify the status of the law or where the Government intends to move in a new direction and executive action may otherwise be contrary to existing law. In any event, an Act of Parliament provides the type of certainty and predictability that inspires the confidence of investors and regulated firms. Legislation is also required in circumstances where a country enters into an international treaty and thereby undertakes to implement laws in conformity with such a treaty in order to ensure that the treaty is enforceable under local law. In Trinidad and Tobago, the Chief Parliamentary Counsel Department of the Ministry of the Attorney General has primary responsibility for “ensuring that policies formulated by the Government are translated into legal language” (Ministry of the Attorney-General, 2006). They prepare both primary and subsidiary legislation and government bills are usually drafted on the instructions of the government department responsible for the particular portfolio.

The Current Legislative, Regulatory framework The legislative framework for the telecommunications sector is contained in the Telecommunications Act 2001 amended by Act No. 17 of 2004 and the Interconnection and Access to Facilities Regulations 2006 made under the parent Act in 2006. The Act contains provisions on licensing, spectrum management, interconnection, prices, numbering, rights of way, equipment standards, universal service and consumer protection. It also creates offences relating to breaches of key conditions of concessions or provisions of the Act, such as obstructing the transmission of any communication or causing harmful interference to any telecoms network or radio communications service (Section 65). When the legislative framework for the regulation of the telecommunications industry was established under the Telecommunications Act in 2001, there were a number of policy factors which informed its creation and that influenced the evolution of this Act of Parliament; chief of which has been the Government’s commitment as a signatory to the WTO’s Basic Telecommunications Service Agreement, to open the country’s market to several value-added services and to introduce competition in the market for basic telecommunications no later than the year 2010. In order to comply with its obligations it became necessary to upgrade outdated law which was by then considered ill suited to the new thrust to liberalize the telecommunications sector (Telecommunications Bill 2001).

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A key feature of liberalization has been the creation of independent sector-specific regulatory bodies with a clear mandate set out, ideally in a legislative instrument.1The World Trade Organisation (WTO) as a key catalyst in shaping global telecommunications sector reform has identified the development and maintenance of “an independent Regulatory Authority as a crucial factor in the successful liberalization of any telecommunications sector” (WTO 1999).

Creation of a regulatory framework “No uniformity can be identified in the institutional structures of regulators introduced on a worldwide basis” for implementing an independent regulatory agency (Spyrelli 2003, 2). This is because countries will inevitably devise their own regulatory system based on their political and economic environment, the legal system and the policy objectives of reform and regulation (Bauer 1995). The particular approach that is adopted by any country will be influenced by those factors as well as its own interpretation of “regulatory independence” depending on the degree of autonomy that it considers suitable to confer on the Regulator without surrendering too much of its own political control. (Smith 1997) In making a decision to create an independent regulator it is therefore important to have a clear understanding of “how much independence” to be afforded the regulator “independence from whom,” and “what are the optimal institutional structures necessary for achieving that independence”, however it is conceived. Based on the various approaches to independence adopted globally, the Government had several options to choose from.

Definition of independence A dictionary definition of “independent” refers to the state of “not being dependent, not subject to control, restriction, modification or limitation from a given outside source” (Black’s Law Dictionary). But this notion of a Regulator possessing absolute independence is inconsistent

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According to the International Telecommunications Union’s (ITU) Report, Trends in Telecommunications Reform: Effective Regulation (Trends 2002), during the period 1990 to 2001, the number of independent sector-specific agencies have increased from 13 to 110 and the ITU expects this figure to multiply to 140 countries by 2005.

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with its role as an implementer of public policy objectives and therefore its relationship with the political directorate. Melody (1997) asserts, that the term “independence,” as used in the context of telecom reform: ...does not imply independence from government policy, or the power to make policy, but rather independence to implement policy without undue interference from politicians or industry lobbyists. It implies independence to acquire specialised skills, to manage without interference and to be accountable for results according to specified performance criteria. Smith (1997) defines independence for utility regulators in terms of the nature of their stakeholder relationships and governance structure. It consists of, what he calls an arms-length relationship with regulated firms, consumers and other private interests, an arms-length relationship with political authorities and the attributes of organizational autonomy. It is argued that the idea of a regulator that is independent of consumers is a contradiction in terms, particularly in a competitive environment where the role of the Regulator is to promote competition, with the consumers being the ultimate beneficiaries. The European model as contained in the European Union’s Open Network Provision Framework Directive is based on a similar principle; that a national regulatory authority “shall be legally distinct from and functionally independent of all organizations providing telecommunications networks, equipment or services.” It goes further to impose a condition on state owned telecommunications operators that “Member States shall ensure structural separation of the regulatory function from activities associated with ownership or control.” The United States Federal Communications Commission (FCC), in its regulator’s guide extends this prescription to include separation from government. An effective regulator should be independent from those it regulates, protected from political pressure, and given the full ability to regulate the market by making policy and enforcement decisions (FCC 1999).

Article 5 of the Reference Paper to WTO’s Basic Telecommunications Service Agreement that came into effect on February 05, 1998 states that: The Regulatory body is separate from, and not accountable to, any supplier of basic telecommunications services. The decisions of and the procedures used by regulators shall be impartial with respect to all market participants (WTO 1997, Art. 5).

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Several WTO member countries, including Trinidad and Tobago, made commitments to all or parts of the Reference Paper, subscribing to pro-competitive regulatory principles which included the establishment of independent Regulators. Compliance with these commitments requires only the creation of a structure for a Regulatory body that is “separate from, and not accountable to, any supplier of basic telecommunications services” (WTO 1997). This principle is linked to the requirement that regulators should practice non-discrimination in treating with all market players and that they should not have any relationship with any telecommunication operators. There is no requirement that the regulator should be separate and distinct from government ministries and departments. As a signatory to the General Agreement on Trade in Services (GATS) on basic telecommunications services, the Government of Trinidad and Tobago committed to open the country’s market to several value-added services and to introduce competition in the market for basic telecommunications no later than the year 2010.

A Telecommunications Policy for Trinidad and Tobago The single document that articulates a National Policy for telecommunications in Trinidad and Tobago which would have informed the drafting of the telecommunications legislation is the 1998 “Report of the Working Group appointed by Cabinet to prepare a National Policy on Telecommunications for Trinidad and Tobago,” previously referred to, as “the Dookeran Report.” The Working Group recommended in its report (hereinafter called the “Dookeran Report”), the establishment of a telecommunications regulatory body, characterized by “strength, impartiality and independence,” as the most appropriate for promoting “confidence on the part of operators, investors and users and to encourage investment in the sector” (Ministry of Planning 1998, 32). When the legislation was introduced in Parliament three years later, it is unclear whether this document accurately or fully represented Government policy at the time, since it is apparent that all its recommendations were not reflected in the accompanying debates and the final legislation. This Report is however, valuable to the discussion on the independence of the Regulator to the extent that it represents an important milestone in the reform process which culminated in the existing legal and regulatory framework and is a measure of how far the legislation has departed from the original objective of an “independent Regulator.”

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Background The Telecommunications Act 2001(the Act) which established the Trinidad and Tobago Telecommunications Authority (now called the Telecommunications Authority of Trinidad and Tobago) was enacted and came into effect in October 2001 after the first attempt to introduce the Bill in Parliament, failed. During the three-year hiatus between the policy creation and implementation, the telecommunications portfolio was shifted from one Minister to another as Ministries were re-configured resulting in what one senior public official describes in an interview, as a “logistical nightmare.” “Telecommunications” fell variously under the Ministry of Information, Communications, Training and Distance Learning; the Office of the Prime Minister; and the Ministry of Communications and Information Technology and each re-assignment meant a fresh round of consultancies and a re-start of the reform process. At the time of writing, the line Ministry responsible for telecommunications is the Ministry of Public Administration and Information. A series of events accounted for the length delay (three years) in the introduction of competition into the Trinidad and Tobago market and the policy gaps between the recommendations of the Dookeran Report and the actual provisions of the Telecommunications Act 2001. Significantly, while the Telecommunications Act 2001 which created the Authority was enacted during the administration of the United National Congress political party, its implementation has taken place under the government of the People’s National Movement. Shifting policy positions usually accompany a change of government and the evolving relationship between the Authority, the Board, and the Ministry was probably influenced by this change in the political directorate.

The Implementation of the Regulatory Framework The implementation of the existing regulatory framework took place in two consecutive phases; in October 2001 and July 2004 respectively. When the Telecommunications Act was given Presidential assent in October 2001, only the administrative sections of the Act came into effect. Technically, the Telecommunications Authority was established with the appointment of the Board in April 2002, but the institutional structure and staffing for the Authority were not yet in place. Consequently, up to July 1, 2004 when the Act was fully proclaimed, the old regulatory arrangements were maintained, as the Regulated Industries Commission (the RIC) and the Telecommunications Division of the line Ministry

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continued to share responsibility for regulating the telecommunications sector.

The Policy Context The Explanatory Note to the Telecommunications Bill, 2001 explains the intention of the Executive when it introduced the legislation in Parliament as follows: The Act is intended to replace the existing statutes which are decades old, are ill suited for an era of convergence among telecommunications and broadcasting services, as well as new, internet-based services (Telecommunications Bill 2001, 2).

The key pillars of sector reform, reflected in the general aims and objectives of the Bill are as follows: x The liberalisation of the telecommunications sector in Trinidad and Tobago to ensure greater customer satisfaction and affordable cost of services to the customer; and x The establishment of the Trinidad and Tobago Telecommunications Authority “as the governing body for telecommunications, with the power to oversee and regulate the telecommunications sector.” The Government’s reform initiatives were influenced by two major factors: x Trinidad and Tobago acceded to the World Trade Organisation Agreement on Basic Telephone Services in 1997 and committed itself to liberalisation after 2010; x The Government’s desire to seize the opportunity provided by liberalisation to attract providers of efficient and technologically advanced telecommunications services to Trinidad and Tobago, with the expectation of promoting broader business activity and making Trinidad and Tobago a regional centre for the new information economy. In the Act, there is no mention of the word “independent” in relation to the powers of the Authority and any notion of independence is to be implied from the express provisions relating to the functions and duties vested in the Authority, the role of the line Minister, and the governance arrangements contained in the Act. Contrary to the view expressed by one writer that the Working Group’s recommendations for the overhaul of the overall regulatory framework were largely enacted by the

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Telecommunications Act 2001, the Act has failed to address the critical issue of an appropriate governance structure for an independent Regulator.

Recommendations of the Dookeran Report The Working Group on Telecommunications Policy for Trinidad and Tobago, in its 1998 Report, was very clear in its recommendation that a new regulatory body be created by the Government, with a governance structure: “composition, structure, staffing and administration,” that “would allow for its independence and effective operation” (Ministry of Planning 1998, 8). The Report further stated that the regulatory body should be independent as defined in its mode of operations: ...to treat at arm’s length with regulated firms, consumers, and other private interests and with political authorities…It should possess the attributes of institutional and organizational autonomy such as earmarked funding and exception from civil service rules (Ministry of Planning 1998, 32). The Working Group based its position on recognition that: ...for the legislative and regulatory framework to be effective, it is important that the telecommunications regulatory body be independent not only of the organizations providing the infrastructure and services and the various interested parties, but also of the policy formulation function of the State (Ministry of Planning 1998, 32).

In 2001, when the legislation was laid in Parliament, supposedly in furtherance of the policy recommendations contained in the Dookeran Report, the intention of the Executive, with respect to the independence of the Regulator, did not go as far as the recommendations anticipated. There is no available documentation that will explain this diluting of the notion of “independence from political authorities” as proposed, or whether any reference was made to that aspect of the Report at all. The Government’s position on the interpretation and implementation of the independent Regulator is expressed unequivocally in the Explanatory Note to the Telecommunications Bill as follows: Consistent with the World Trade Organization obligations of Trinidad and Tobago, the Authority is structured to be independent from the influences of providers of services. Its independence is not absolute, however, in that the Authority, pursuant to section 19 is required to implement Government policy (Telecommunications Bill 2001, 2).

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However, in presenting the Bill to Parliament, there is no reference to an independent regulatory body but instead to “the establishment of a specialized and fair regulatory institution”, the intention being to put in place “a facilitative body rather than a regulatory authority” (Hansard Report 2001, 178). In effect, the Government had proposed a watered down version of the robust regulatory body that the Working Group envisaged and which is recommended by the international telecommunications experts. The notion of an independent Regulator was first introduced as a challenge by the Opposition to the mode of appointment of the Board to the Telecommunications Authority and the powerful role that the line Minister would play in awarding concessions and licences and in giving special or general instructions to the Authority. Instead, it was strongly suggested that the Authority should “be completely and truly independent” (Hansard Report 2001, 189). In the words of the then Permanent Secretary of the line Ministry, “the Bill had a rough passage in Parliament and the issue revolved around the power of the Minister”. In making reference to the Dookeran Report, the Minister of Telecommunications explained to the Senate, that this Report formed the basis of the Bill, but it is evident that the key recommendations were omitted from the draft legislation. The final legislation was passed by Parliament after several rounds of intense negotiation at the Committee Stage, with thirty-five amendments.

Choosing an Appropriate Legal and Regulatory Framework The Dookeran Report limited itself (or was limited) to providing general guidelines for establishing the Authority and therefore did not provide any detailed institutional design or structure for implementing the independence objective. At the same time it recognized the sensitivity of the relationship between the proposed Authority and the relevant Minister in charge of telecommunications and by implication, flagged it as an area of contention. The decision on an appropriate governance structure was therefore one that had been left for the drafting stage but clearly, the legislation did not reflect the Working Group’s policy recommendations in that regard. Instead, it reflected the degree of independence that the Government was willing to give to the Authority, within the constraints of the country’s “institutional endowment.” The issue of designing an appropriate legal and regulatory framework for any country is one that was examined by Brian Levy and Pablo Spiller, who asserted that there is no one-size fits-all solution, but that the

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framework should match the nation’s institutional endowment i.e. the background pattern of judicial, legislative and administrative institutions of a country. According to that theory: ...the choices that countries make about regulatory governance are constrained by the specific institutional endowment of the nation which determines the form and severity of the country’s regulatory problems and the range of options for resolving them (Levy and Spiller 1994, 4).

While Levy and Spiller’s work was used to develop a decisionframework within which the World Bank could provide advice on regulatory reform in developing countries, the approach to creating a legislative framework in countries like Trinidad and Tobago, is very often not as deliberate and predictable. A frequent complaint of the State’s legislative drafters is that the drafting instructions from the various clients in Ministries and government agencies often do not include adequate policy guidance in key areas. The government’s choice of an institutional design and governance structure for the regulatory body depends to a large extent on the constitutional and legal structures that dictate how governments operate within each country.

The Constitution of the Republic of Trinidad and Tobago “The Constitution is the supreme law of Trinidad and Tobago and any other law which is inconsistent with it, is void to the extent of that inconsistency” (Section 2). Where for example, certain provisions in a Bill contravene certain entrenched citizens’ rights, a special majority is required for passage by Parliament unless it is shown not to be reasonably justifiable in a society that has a proper respect for the rights and freedoms of the individual. This procedural safeguard has been utilised by the Opposition in Parliament, to deny the passage of legislation to which it is opposed and for which the Executive required their support because of its small majority. In recent times, this has certainly affected the policy and legislative agenda that the Government has been able to implement in certain areas. In fact, whether the insertion of certain provisions in a particular Bill will require a special majority is a major consideration for policymakers and legislative drafters. More specifically, the Authority is bound by the provisions of the Constitution Ch: 1: 01, and in exercising its regulatory powers, it must do so consistently with the existing constitutional rights and freedoms contained in Section 4 and 5 of the Constitution. Section 3 of the Telecommunications Act expressly imposes this obligation in respect of its

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powers to regulate broadcasting services. Other express obligations imposed by the Constitution are in relation to the accounts of the Authority, which are public accounts for the purpose of Section 116 of the Constitution and therefore must be audited annually and reports submitted by the Auditor General to the Parliament’s presiding officers for laying in Parliament.

Other Legislation “Independence of the Regulator does not mean independence from the laws and policies of a country” (Intven and Tetrault 2000, 1-7). Section 4 of the Telecommunications Act created the Authority as a “body corporate” with an official seal, managed by a Board for the purpose of exercising and performing such duties conferred upon it by the Act and by “any other written law”. “Any other written law” refers to those expressly referred to in the Act, such as the Prevention of Corruption Act of 1987, the Environmental Management Act as well as any existing or future legislation that applies expressly or by implication such as the Integrity in Public Life Act No. 83 of 2000 and the Freedom of Information Act 2001. The Authority is also a public body for the purposes of the Judicial Review Act and therefore its actions are subject to the principles of public law. There must be adequate funding of the regulatory process in order for any agency to operate effectively and achieve its mandate. Traditionally, funding has come from annual government allocations where the regulator functioned as an entity within a government Ministry. Funding of the Regulator from the public purse immediately invokes the provisions of the Exchequer and Audit Act Ch:69:01which requires that annual budget estimates are prepared and submitted for approval to the line Minister before the finalisation of the national budget by Parliament.

Legislative Precedents The Telecommunications Authority of Trinidad and Tobago is a statutory body created by an act of Parliament, to be distinguished from a statutory authority under the Statutory Authorities Act. At the time when the Telecommunications Act was drafted, there existed several examples of statutory bodies on which to pattern its enabling legislation. They include the National Library and Information System Authority established by the NALIS Act 1998, the Environmental Management Authority established by The Environmental Management Act 2000 and

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more contemporaneously, the Trinidad and Tobago Civil Aviation Authority established by The Civil Aviation Act 2001. There was precedent in the utilities sector for creating a regulatory body along the lines of the Regulated Industries Commission (RIC), the predecessor of the Authority. The RIC created by the Regulated Industries Commission Act of 1998 (“the RIC Act”) possesses several areas of similarity to that of the Telecommunications Authority. These relate to the Presidential appointment of its members, employment of staff, funding, reporting requirements and the role of the Minister in granting licences (Section 15 of the Regulated Industries Commission Act 1998). There are two important points of departure: in the terms and conditions of employment of the Executive Director and the procedure for award of concessions/licences. Under the Telecommunications Act, the terms are agreed between the Board and the Executive Director while under the RIC Act, they are determined by the Minister. The award of licences is a joint process shared by the Regulator and the Minister, with the Regulator acting in an advisory role. In both cases, the recommendation of the Regulator is not binding on the Minister but in the case of the Telecommunications Authority, the Minister must give reasons for rejecting or modifying its recommendations. Interestingly, the identical clause, found in the RIC Act, which provides that the “Minister is not bound to accept the advice rendered by the Commission” (Section 39) was included in the original Telecommunications Bill introduced in Parliament but was hastily removed after strong objections by the Opposition (Hansard Report 2001).

Political/Legal System Trinidad and Tobago is a two-party democracy and the political structure is patterned to a large extent on the British Westminster system. The political party that can gain support from a majority in Parliament chooses the Prime Minister, who along with the Cabinet wields political power. The President is the Head of State while the Prime Minister has full executive power. Elections are held every five years and prior to 1986; the politics was dominated by one party for thirty years. The last fifteen years has seen a change in that pattern with either of the two major political parties alternating at least every two terms. This has had an effect on the consistent development of national policy as each administration seeks to promote its own policy agenda within its five year term of office and is in perpetual “election mode.” The effect of this was clearly

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illustrated in the case of the now repealed Telecommunications Authority Act which was passed in Parliament in 1991 and provided for the creation of an independent regulatory body. When the PNM Government returned to power this Act was never proclaimed and they opted instead to create a Telecommunications Division within the Office of the Prime Minister to regulate the sector. Levy and Spiller identified as a shortcoming of the Westminster model of government, the fact that it does not allow for a regulatory mechanism “embedded in legislation” to provide the required safeguards for investment and growth because the rules of the game can change along with the government administration, or even within the same administration. This is based on the principle that one Parliament cannot bind another and therefore a subsequent Parliament can repeal legislation passed by its predecessor. The argument is that under the Westminster type model, legislation is an ineffective tool for ensuring predictability and certainty in the regulatory environment. External institutions that are likely to enforce these regulatory constraints embedded in the law are the courts, through the judicial review process or the appeal route. The traditional view is that the effectiveness of judicial control is weakened in a system of bi-cameral legislature, which is controlled by the executive and where there is no clear separation but a distinct overlapping of both arms of government. The government in power controls the parliamentary agenda and where it holds the majority position, the party in power can carry its policies through administrative or parliamentary decisions. For example, where the court’s interpretation of the provisions of an act does not find favour with the Executive, the latter has the option of bringing a proposal to the Parliament to amend the particular provision to achieve a more favourable outcome in the future. Recent developments in Trinidad and Tobago indicate however, that the Judiciary acts as an effective restraint on Executive action either in the way the latter exercises its official mandate or any attempt to encroach on the jurisdictional powers of the Judiciary.

The Judiciary Douglas Mendes S.C., writing on judicial independence in Trinidad and Tobago, declared that under the Constitution of Trinidad and Tobago, the Judiciary enjoys a high degree of protection from outside influence. He referred to the increasing regularity of complaints that the Government cannot expect to receive an impartial hearing before the Courts, as evidence of the judiciary’s independence from the Executive (Ryan and

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Bissessar 2002, 162). The rapidly growing list of decisions by the court over the last three years which have gone against the State is testimony to the separation of executive and legislative powers. This position may have been further strengthened following a decision of the High Court (HCA 1070 of 2005) where the presiding Judge held that the Judicial Review (Amendment) Bill which the Government had laid in Parliament was unconstitutional because it deprived a public interest litigant of his right to have his standing considered by the court in a judicial review application (The Trinidad and Tobago Civil Rights Association v. The Attorney General of Trinidad and Tobago, HCA No. S1070 of 2005). This case raises interesting issues relating to the separation of powers and the interference by the Executive with the supervisory jurisdiction of the Court.

Challenges to independence Setting up an independent agency is, by all accounts, no easy task in any setting. It is “even more challenging in countries with a limited tradition of independent public institutions and limited regulatory experience and capacity” (Smith 1997a, 2). Apart from the constraints imposed by the institutional endowment, there are a number of challenges to achieving independence of the Regulator. Smith (1997a) noted that governments are reluctant to surrender political control over regulatory decisions. This may be so for several reasons, including the fact that, as he sees it, “prices for utility services are usually political.” Of equal importance is the critical role of telecommunications as a tool of social and economic development. Some argue that spectrum is a State asset to be utilized in the public interest and of which the Government is the custodian. The Regulator has designated responsibility to manage the public assets in the public interest, subject to the right of the Government to give policy direction in that regard. It is also likely that the Ministry will fear being held politically accountable for the regulator’s decisions (ITU 2002). After all, according to the ITU, it is the Government that is accountable, through the electoral process, for the performance of all government institutions. They will be unwilling to give to Regulators technocratic independence, and stand idly by while regulators take actions “that conflict with their policies, their ideology, their views of the public interest, or more to the point, their political futures (ITU 2002, 37). For some, the granting of too much autonomy to the Regulator is viewed as an “abdication of the political responsibility of elected government officials” (Melody 1997, 21). The

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Minister responsible for telecommunications in Trinidad and Tobago summed up the fears and suspicion of his government, when he expressed the view that, contrary to what some may believe, independence does not mean lack of accountability. There is no such thing as true independence since “regulators, in few, if any countries, enjoy complete independence from governments” (Hank and Intven 2000, 1-6). The degree of independence of the Regulator therefore depends in the first instance, on the political will and commitment of the Government to creating an independent regulatory body and allowing it the freedom to implement its regulatory mandate without any political intervention. Indeed, it is the Government that determines policy for the telecommunications sector and therefore creates the framework for implementation by drafting the appropriate legislation. The legal and regulatory framework that emerges therefore reflects the maturity of the sector and the confidence that the Executive is willing to vest in the process. In his contribution to the debate on the Telecommunications Bill, Professor Kenny, an Independent member of the Senate, lamented the “tendency in our system for Cabinet micromanagement of everything.” He further blamed this tendency as being part of our culture that prevents us from growing to the point, ...where we are prepared to set up authorities and delegate powers to those authorities, with very clearly framed rules which are approved by the Parliament of the country (Hansard Report 2001, 202).

Evaluating the independence of the Regulator In evaluating the independence of the Trinidad and Tobago Telecommunications Regulator, I have depended heavily on the studies conducted by Warwick Smith (1997) and that of Stern and Holder (1997) who developed six governance criteria specifically to provide a framework for systematic and comparative data collection by case study. I have applied those criteria as a yardstick for evaluating the appropriateness of the Telecommunications Act 2001 for establishing an independent Regulator. Those criteria are clarity of roles and objectives, autonomy, participation, accountability, transparency and predictability. What has clearly emerged from the review is that according to the foregoing criteria, the legal framework is inappropriate for ensuring independence for the telecommunications regulator. This has to be considered in light of the newness of the regulator and the constraints imposed by political, legal and constitutional factors. The lack of proper mechanisms and procedures to manage the transfer of regulatory function

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from a government Division to an Authority as a separate entity, also accounts for the overlapping of roles between the two agencies. There is also reluctance on the part of the government to surrender control in an area that lies at the core of national development policy. The Authority has a separate legal existence with its duties, powers and functions enshrined in statute. It is structurally independent as it was created and operates separately from the incumbent operator and the line Ministry. In this regard, the Regulator enjoys more of an arm’s-length relationship with the political directorate than its predecessor which was a Department of the Ministry. The mode of appointment of the Board, the fixing of their terms and conditions by the President and the strict limitations on the President’s powers dismissal of provide an adequate degree of protection for its members from arbitrary removal. As the Authority becomes less dependent on public funds and achieves a greater degree of self-sufficiency, greater financial autonomy will be achieved which is balanced by a satisfactory level of accountability imposed by the Act. However, the lack of independent hiring practices and the linking of the salary structure for senior staff to the rules of the civil service, reduce the independence of the Regulator. The Act provides for review of the decisions of the Authority by the Board, Minister and the High Court and this is expected to exercise substantial restraint on the actions of the Authority. However, the absence of rules and procedures that will guide the review process as it applies to the Minister and the Board is not likely to inspire confidence in the transparency and independence of this mechanism. While technically, the Executive arm of Government, with its simple majority in Parliament can amend the Act and thereby reduce the powers and duties of the Authority, any significant reversal of the latter’s role is very unlikely. The greatest areas of weakness in the regulatory framework arise from the ambiguities related to the joint exercise of functions by the Minister and the Authority and the effect of Section 19, and the lack of transparent procedures for communications between the Authority and the Minister.

Conclusion What I have attempted to do in this paper has been to trace the development of the policy and regulatory framework that governs the telecommunications industry in Trinidad and Tobago with particular emphasis on how the notion of an independent Regulator has been implemented in the Telecommunications Act 2001. Independence is capable of several meanings and the way in which it is interpreted by a

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particular country depends largely on that country’s constitutional, legal and political contexts. The term is defined in terms of its governance structure and the nature of the Regulator’s relationships with its stakeholders, namely consumers, operators and private interests and the government. However, the concern of the telecommunications experts and the focus of most of the scholarly works and country case studies has been the relationship of the Regulator with the political authorities, which remains a contentious one. The model that was chosen for Trinidad and Tobago is based on the guidelines provided by the WTO which requires the independence of the Regulator from telecommunications operators only. While, in passing the Telecommunications Act in 2001, the Government would have fulfilled its commitment at least on paper, as far as the body of telecommunications experts and scholars are concerned, the Act did not go far enough in dealing with the relationship between the Regulator and the government. It chose the line of least resistance by avoiding the definition of a clear mandate for the Regulator within a framework that ensured the latter’s protection from political pressure. There is no foolproof formula for ensuring the independence of the regulator and this is particularly problematic with respect to independence from the political directorate. Smith (1997) concedes that it is more challenging to set up an independent agency in “countries which have a limited tradition of independent public institutions and limited regulatory experience and capacity.” What is required, in the first instance, is a foundation for enabling this independence; where the Regulator has the backing of an institutional structure that inspires the confidence of the regulator and the respect of its stakeholders. Putting in place an appropriate legislative framework, which defines the mandate of the Regulator and its functional relationship with the Minister and other government agencies, is a necessary step in creating that enabling regulatory environment. However, in the words of Dr. Prince, “legislation is a necessary, not sufficient condition to independence” and therefore by itself is an ineffective tool for achieving that objective. This study has focused on identifying strengths and deficiencies in the Telecommunications Act 2001 affecting regulatory independence and therefore any recommendations should address adjustments to the legal framework that would bring it in line with the defined criteria. That approach by itself is not guaranteed to achieve the desired results in the absence of effective mechanisms, legislated or otherwise, for ensuring legitimate political input in the context of a fair, transparent and

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accountable regulatory process (Brown, 2004) that is non-sensitive to issues of personality and territorial rivalry. It is widely accepted that independence is a necessary feature of an effective regulator and in the case of Trinidad and Tobago there is a distinct advantage to be derived from having a separate institutional body that can avoid potential conflicts of interest that can occur where the government retains a majority shareholding in the incumbent. According to the Chairman of the Divestment Secretariat, the option of government divestment of its shares in TSTT is not one that the Government is likely to exercise in the near future (Trinidad Guardian, October 06, 2006). Under the old regulatory regime, there was a perception that the government may have been protecting the incumbent from competition in order to utilize its revenues for other policy goals. The tensions that have existed between the Authority and the Minister have had less to do with government’s ownership of the incumbent than with the latter’s penchant for micro-management or its misreading of his own role vis-à-vis the Regulator. The Executive Director cites “respect for territory” by both parties as key to minimizing and managing conflicts. In that regard, he identifies the important role of legislation in defining the respective “territories.” Based on an examination of the Act, it is quite apparent that there are several areas of ambiguity, which “leave [much] room for interpretation” and conflict. The dispute relating to the power of the Board to appoint and set the terms of employment of the Executive Director and staff was one which turned on each sides’ interpretation of the Section 8 of the Act and the more generic Section 19 which puts a gloss on the apparently absolute discretion of the Board. The more pragmatic approach of the then Chairman, who interpreted the ethos of the legislation, in defence of the statutory right of the Board to pay decent salaries to its key personnel in order to ensure that “they are not suborned by large operators out there,” was in direct contradiction to that of the Minister. Section 19, which is to be read subject to the provisions of the Act and any other written law, gives to the Minister the power to “give written directions to the Authority on matters of general public policy.” There is no dispute regarding the role of the Minister in regulating utility services and in establishing the policies under which the sectors of the economy are to operate. What is less clear is where to locate the dividing line between general and specific public policy. Clearly, the regulator is a statutory body performing a public role in the public’s interest and all its actions may easily be interpreted as touching and concerning general public policy. There are matters that fall clearly

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outside the province of independent regulators, (such as national security, taxation and subsidies and relations with foreign government) and within the purview of political, but these are not the issues that create potential for conflict. Until such a definition can be found that will reduce the blurriness of the boundaries, a mechanism will have to be devised to determine the allocation of responsibilities for policy, between regulatory bodies and the Ministry. Transparency is an important requirement for ensuring legitimacy and independence of the Regulator and is a useful guard against regulatory capture. The Authority is mandated by the Act to adopt procedures that allow consultation with the public and interested parties in the performance of its functions and has developed elaborate procedures for doing so. The principle of transparency and openness in decision-making should apply equally to consultation between the Regulator and Government as it does to operators. Melody (1997) prescribed the public reporting of government communication to and from the Regulator as a requirement of an independent governance structure. Brown (2004) has underscored the importance of communication in delineating the actions of the Minister from the regulator based on the principle that where a ministerial directive is the basis for regulatory action, the source of the directive should be clear and unambiguous. This is important in clearing up the ambiguities resulting from the effects of Section 19 which gives the Minister, the right to give directions to the Authority on matters of general policy. It is contrary to good governance practices, that a regulator should be required to act, or be restrained from performing its functions on the basis of a policy that was hitherto undisclosed or even non-existent, especially where this may be inconsistent with an express power of the regulator. While some may argue that formal publication of government communications is cumbersome and time consuming, especially when the Authority is already burdened with drafting much needed statutory instruments, it is worth the trouble, if only to avoid future conflicts and the real threat of litigation.

Constraints Lack of any major regulatory decisions on the part of the Regulator so far, has limited the writer’s ability to assess fully the existence of the key features of the governance structure, especially since two of the questions on the consistency of decision making assumed that there was a pattern of decision making on which to discern a trend or draw certain conclusions.

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The findings of the study need to be followed by further research that will assess whether the actual processes and practices of the Regulator accord with the criteria that have been established by the Telecommunications Act 2001 and, to the extent that they have, how it has influenced the performance of the sector. This study is one of the first of its kind to examine the independence of the Telecommunications Authority of Trinidad and Tobago, by reference to its enabling legal and regulatory framework. Critical review of legislation can be a tedious exercise and has to be understood in the context of the environment in which and for which the Act has been created. Legislation is a tool for implementation of policy objectives and whether it has done so successfully, will depend on the perspective from which it is viewed: that of the Regulator or the policymaker. The Regulator will always desire greater freedom to regulate while the Government will not easily surrender control to the Regulator. The Authority is still in its early stages of development and as it demonstrates its capacity to make consistently sound decisions, it will inspire the confidence of its stakeholders and persuade the political directorate to gradually relax its control to allow a greater degree of independence.

References Baudrier, Audrey. 2001. Independent regulation and telecommunications performance in developing countries. Working Paper, University of Paris Panthéon–Sorbonne and Autorité de Régulation des Télécommunications, September 2001. Brown, Franklin. 2004. Ministerial policy objectives: The case for an appropriate framework. Paper to the 2nd Organisation of Caribbean Utility Regulator Conference, 15-17 September 2004. Montego Bay, Jamaica. http://www.oocur.org/2ndConference/Files/Brown_paper.pdf (accessed January 17, 2006) Byer, Claude. 2004. Measuring Regulatory Independence–A Caribbean Perspective. Paper to the 2nd Organisation of Caribbean Utility Regulator Conference, 15-17 September 2004. Montego Bay, Jamaica. http://www.oocur.org/2ndConference/Files/Byer.paper.pdf (accessed January 17, 2006) Directive 97/51/EC of the European Parliament and of the Council of the 6th October 1997.

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Federal Communications Commission. 1999. Connecting the globe: A regulator’s guide to building a global information community. Washington, DC: Federal Communications Commission. http://www.fcc.gov/connectglobe/ (accessed October 23, 2005) GATS Agreement and Annex to Agreement on Telecommunications. http://www.wto.org/english/tratop_e/serv_e/gatsintr_e.htm (accessed October 5, 2005) International Telecommunications Union. 2000. The Telecommunication Development Bureau of the International Telecommunication Union (ITU) and the Inter- American Telecommunications Commission (CITEL). Telecommunication Policies for the Americas. The Blue Book. Geneva: International Telecommunications Union. ITU. 2001a. Case Studies: Reglementation. http://www.itu.int/itudoc —. 2001b. Effective regulation case study: Botswana. A case study on effective regulation in Sub-Saharan Africa and regional cooperation. Geneva: International Telecommunication Union. —. 2001c. Telecommunication Development Bureau ITU-D Study Groups. Fourth meeting of Study Group 1: Caracas (Venezuela) 3-7 September 2001. Final Report on Question 8/1 Establishment of an independent regulatory body. Geneva: International Telecommunication Union. —. 2002. Effective regulation: Trends in telecommunication reform 2002. Geneva: International Telecommunication Union. —. 2005. Domestic enforcement of telecommunications laws: Guidelines for the international community. Report on ITU-D Question 18/1. Geneva: International Telecommunication Union. Intven, H., Oliver, J. and Sepulveda, E. 2000. Telecommunications regulation handbook. Module 1. Washington DC: The World Bank. http://www.infodev.org/projects/314regulationhandbook/ (accessed October 6, 2005) Jamaica. Supreme Court. 2002. In the Supreme Court of Jamaica in Miscellaneous Suit No. M. 074/2002 Between Mossel Jamaica Ltd (T/A) Digicel And Office of Utilities Regulations and Cable and Wireless Jamaica Ltd and Centennial Digital Jamaica Ltd. Jamison, M.A. 2005. Leadership and the independent regulator. http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2 005/06/28/000112742_20050628084853/Rendered/PDF/wps 3620.pdf (accessed Dec 29, 2005) Levy, B. and Spiller, P.T. 1994. The institutional foundations of regulatory commitment: a comparative analysis of telecommunications

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regulation. Journal of Law, Economics and Organisation. 10(2): 201246. —. 1996. A framework for resolving the regulatory problem. In: Regulations, institutions, and commitment: Comparative studies in telecommunications. Edited by B. Levy and P.T. Spiller. Cambridge, U.K. Cambridge University Press. http://courses.sta.uwi.edu/RP68L/course_work/reading_resources/rptl6 807/Levy&Spiller1.pdf (accessed October 8, 2005) Lodge, M., and Stirton, L. 2002. Regulatory reform in small developing states: Globalisation, regulatory autonomy and Jamaican telecommunications. New Political Economy: 7(3). http://www.lse.ac.uk/collections/CARR/pdf/Disspaper5.pdf (accessed December 29, 2005) Melody, W. 1997. Telecom reform: Principles, policies and regulatory proceses. Lyngby: Den Private Ingeniorford, Technical University of Denmark. http://lirne.net/live/content/view/7/42/ (accessed October 19, 2005) Organisation for Economic Co-operation and Development. 2000. Working party on telecommunication and information service policies. Telecommunications regulations: Institutional structures and responsibilities. Petrazzini, B.A. 1997. Regulating communication services in developing countries in telecom reform: Principles, policies and regulatory practices. Edited by W.H. Melody. Lyngby: Den Private Ingenior fond, Technical University of Denmark. http://lirne.net/resources/tr/telecomreform.pdf (accessed December 8, 2005). Salina, Albertina. 2006. Evaluating the independence of the telecommunications regulator in Trinidad and Tobago. A project report submitted in partial fulfillment of the requirement for the Master of Regulation and Policy (Telecommunications). University of the West Indies, St. Augustine Campus. Smith, W. 1997a. Utility regulators- decisionmaking, structures, resources and startup strategy. Note no. 129. In: Public policy for the private sector. Washington DC: World Bank Group. http://rru.worldbank.org/PublicPolicyJournal/Summary.aspx?id=129 (accessed December 27, 2005). —. 1997b. Utility regulators- roles and responsibilities. Note no. 128. In: Public policy for the private sector. Washington DC: World Bank Group.

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http://rru.worldbank.org/PublicPolicyJournal/Summary.aspx?id=128 (accessed December 27 2005) —. 1997c. Utility regulators - the independence debate. Note No. 127. In: Public policy for the private sector. Washington DC: World Bank Group. http://rru.worldbank.org/PublicPolicyJournal/Summary.aspx?id=127 (accessed December 27, 2005) Spyrelli, C. 2003. Regulating the regulators? An assessment of institutional structures and procedural rules of national regulatory authorities. International Journal of Communications Law and Policy. 8 (2003/2004) Stern, J. 1997. What makes an independent regulator independent? Business Strategy Review (8)2: 67-74. http://proquest.umi.com/pqdweb?did=14631603&sid=2&Fmt=2&clien tld=45987&RQT=309&VName=PQD (accessed November 5, 2005) Stern, J. and Cubbin, J. 2005. Regulatory effectiveness: The impact of regulation and regulatory governance arrangements on electricity industry incomes. World Bank Policy Research Working Paper 3536, March 2005. Washington DC: World Bank. Stirton, L. and Lodge, M. 2003. Rethinking institutional endowment in Jamaica: Misguided theory, prophecy of doom or explanation for regulatory change? CARR/CRC/ ABS Risk Regulation, Accountability and Development Workshop, University of Manchester. http://www.stirton.net/regulatorystate.html (accessed November 5, 2005) —. 2002. Embedding regulatory autonomy: The reform of Jamaican telecommunications regulation 1988-2001. ESRC Centre for Analysis of Risk and Regulation Discussion Paper 5. London: London School of Economics and Political Science. http://www.stirton.net/regulatorystate.html (accessed December 29, 2005) Telecommunications Authority of Trinidad and Tobago. 2004. Key Information about the Telecommunications Authority of Trinidad and Tobago. http://www.tatt.org.tt/role.htm (accessed March 13, 2006) —. 2005. Procedures for Consultations in the Telecommunications Sector of Trinidad and Tobago. Port of Spain: Telecommunications Authority of Trinidad and Tobago. http://www.tatt.org.tt/ddocs/pcpo5.pdf (accessed January 19, 2006) Trinidad and Tobago. Court of Appeal. 2000. IN the Court of Appeal CvA. No. 158 of 2000 between the Attorney General of Trinidad and Tobago And Caribbean Communications Network Limited.

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Trinidad and Tobago. 2005. CV 2005-0004. Global Organisation of People of Indian Origin v The Telecommunications Authority of Trinidad and Tobago. Trinidad and Tobago. Hansard Parliamentary Debates. House of Representatives. 2001. Telecommunications Bill 2001. March 6, 2001. http://www.ttparliament.org (accessed October 6, 2005) Trinidad and Tobago. Hansard Parliamentary Debates. Senate. 2001. Telecommunications Bill 2001. April 10, 2001. http://www.ttparliament.org (accessed October 28, 2005) Trinidad and Tobago. Ministry of Planning and Development. 1998. Report of the Working Group appointed by Cabinet to prepare a National Policy on Telecommunications for Trinidad and Tobago. Port of Spain: Government Printery. Trinidad and Tobago. Ministry of Public Administration and Information. 2003. Fast forward: Trinidad and Tobago’s national information and communication technology strategy. Port of Spain: Government Printery. Trinidad and Tobago. 1998. The Regulated Industries Commission Act. Port of Spain: Government Printery. —. 2001a. The Telecommunications Act. Port of Spain: Government Printery. —. 2001b. The Telecommunications Bill. Port of Spain: Government Printery. —. 2004. The Telecommunications Act. Port of Spain: Government Printery. —. 2006. The Telecommunications (Interconnection) Regulations. Port of Spain. Government Printery World Trade Organisation. 1997. Fourth protocol to the General Agreement on Trade in Services. Reference Paper, Article 5. Geneva: World Trade Organization. http://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm (accessed December 12, 2005).

CHAPTER TEN AUDIT COMMITTEES AND GLOBALIZATION: SPONTANEOUS CONVERGENCE VERSUS REGULATORY FIAT ANTHONY R. BOWRIN; DONALD GRIBBIN

Abstract The developed western world has recently experienced several major corporate scandals and business failures involving hitherto leading organizations such as Enron and Parmalat. These events have been attributed to, among other things, weaknesses in, and abuses of key aspects of existing corporate governance systems. As a result, the International Federation of Accountants (IFAC) responded by formulating a set of international best practices of corporate governance, including audit committee requirements. The code is voluntary in nature and draws heavily on the practices of the developed western states. This study has two primary purposes. First, it describes audit committee requirements and actual practice in the US and the West Indies in the period leading up to the recent spate of corporate scandals. It also seeks to determine the extent to which audit committee requirements in the West Indies and the US are similar to the IFAC best practice guidelines. Secondly, it examines whether the trajectory of AC policies of West Indian and US companies are better explained by the spontaneous convergence or the regulatory fiat thesis. Forty-three publicly traded West Indian companies and 40 companies listed on the New York Stock Exchange were included in the study. Data on AC requirements were collected from the laws and regulations of the West Indies and the US while data on actual AC practices were collected from annual reports, proxy statements and company websites. The two researchers independently reviewed the content of the source documents. The data analysis was mainly restricted to the tabulation of audit committee practices and the comparison of the

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frequency counts for firms operating in both jurisdictions. The information obtained in this process was critically assessed to determine which of the two competing research proposition was supported. The findings indicate that the AC requirements of the US are very similar to the IFAC guidelines while those of the WI are not. The AC requirements of West Indian states were almost non-existent and very ad hoc. Firms in the West Indies had almost total discretion regarding what their audit committees do and what they disclose. There was more variability in audit committee practices of companies operating in the West Indies than in those of their counterparts in the US. Overall, the convergence of AC requirements and practices does not seem to be spontaneous but seems to depend on specific regulatory requirements and a systematic and effective compliancemonitoring regime. The implications of these findings are discussed.

Introduction1 The developed western world has recently experienced several major corporate scandals and business failures involving hitherto leading organizations such as Enron, WorldCom, Sunbeam, Parmalat and Vivendi. Additionally, there has been an increase in the frequency of financial restatements by public companies. These events have been attributed to, among other things, weaknesses in, and abuses of existing corporate governance systems (Pitt 2001, Ruder 2002, Walker 2004). According to Monk and Minow (2004: 2) “a corporate governance system is composed of structures intended to ensure that the right questions get asked,” at the appropriate times, “and that checks and balances are in place to ensure that the answers reflect what is best for the creation of long-term, sustainable value.” When these systems breakdown, the likelihood of divergence between the interests of managers and other organizational stakeholders increases, exposing the organization and the wider community to dysfunctional managerial behavior, economic losses and ultimately corporate scandals and failures (Jensen and Meckling 1976). The specific elements of the corporate governance system that received much of the scrutiny and criticism in the aftermath of the recent corporate scandals were the overall control environment within the firms and the audit committee of the board of directors (BOD) (Abbott, Parker and Peters 2004, IFAC 2003). An audit committee is a sub-committee of the BOD usually comprising non-officer, and preferably outside, directors that 1

(KPMG 1999).

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is created to help the BOD discharge its fiduciary responsibilities. It was suggested that in the run-up to the recent corporate scandals audit committees were given too few resources and tended to act too passively in the discharge of their duties (Felo, Mahoney and Solieri 2002). This diagnosis was followed by calls for corporate audit committees to receive adequate resources (quantity and quality), and for them to play a more proactive and hands-on role in the governance of their organizations (Sweeney, Vallario and Waller 2002, Turner 2001). As a result, in several developed countries, including the USA, the UK and Canada, audit committee responsibilities and resources have been enlarged (Ascarelli 2003, DeZoort 1998, Felo, Mahoney and Solieri 2002, Goddard and Masters, 2000) while the likely sanctions for breach of those duties have been made more stringent (Felo, Mahoney and Solieri 2002). Recognizing that corporate scandals and failure are not unique to any one country and that similar factors have been identified as contributors to such events across countries, the International Federation of Accountants (IFAC) responded quickly by formulating a set of international best practices of corporate governance, including audit committee requirements. The code is voluntary in nature and draws heavily on the practices of the developed western states. Many of its member countries and several multilateral agencies have endorsed the IFAC audit committee guidelines. However, the countries in the West Indies which have to date been spared the occurrence of corporate scandals and failures comparable to those experienced by the developed world, have been slow to endorse the guidelines. This despite the fact that there is reason to believe that firms operating in this region are plagued by challenges similar to those implicated in the recent financial scandals in the developed world, namely lax control environments and ineffective corporate governance systems. For instance, Staking and Schulz (1999) argued that states in the West Indies are characterized by very weak and ineffective corporate governance systems. These authors also suggested that substantial improvements must be made to the corporate governance systems in WI states if their capital markets are to operate efficiently and firms are to get access to financing on competitive terms. Based on this assessment the Inter-American Development Bank (IADB) and other supra-national institutions have been advocating the adoption of international best practices of corporate governance by firms operating in the West Indies. Governments and regulators in the West Indies have been slow to respond to these calls for the adoption of international best practices of corporate governance. They apparently prefer to treat the matter as an internal issue to be addressed by individual firms as they strive for

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international competitiveness in the increasingly open global economy.2,3 This laissez faire approach to corporate governance has been attributed, in part, to a recognition by WI states that regulation may inhibit the development of their corporate sector by imposing generic requirements which ignore the specific circumstances of individual firms. The laissez-faire approach to corporate governance adopted by states in the West Indies is consistent with an apparent tendency for countries outside North America, not to compel listed companies to establish audit committee or to stipulate what they should do4 (Walker 20045). It was also seen in the initial approach adopted by the USA towards audit committees. This tendency has been rationalized, in part, as a recognition that the circumstances of companies differ, and that in some cases boards may prefer to exercise certain responsibilities themselves rather than delegate those tasks to subcommittees (Walker 2004).6 However, unlike the situation in the UK and many other non-North American countries, states in the West Indies do not required listed firms to report on whether and how they apply what is regarded as best practices for audit committees and other aspects of corporate governance. They have also elected not to require firms that do not adopt best practice to disclose and explain why they have not done so. This study has two primary purposes. First, it seeks to determine the extent to which audit committee requirements imposed on firms operating in the laissez-faire business environment of the West Indies are similar to those regarded as International Best Practice (IBP). Secondly, it attempts to address a gap in the globalization and policy formation literature caused by the tendency for empirical work in the area to focus more on the 2

This response is consistent with a philosophical preference by states in the West Indies not to regulate the internal functioning or structure of listed companies and is probably a relic of their British colonial heritage and their recent preference for Canadian Corporate Legislation. 3 Companies’ legislation in WI states was initially based on the UK legislation. More recently most of the WI states have upgraded their companies legislation using the Canadian Business Corporation Act as a model. 4 The success of this approach is likely to be enhanced if states and the regulators therein, establish the key responsibilities, processes and objectives that are deems necessary for effective corporate governance before allowing firms to choose the approach they considered appropriate to implement those requirements. 5 There are a few notable exceptions to this tendency including Singapore, Israel and Malaysia. 6 This latter rationale is unlikely to be relevant to the position adopted by West Indian states, as they require all listed companies to have an audit committee.

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direction of policy trajectories and less on whether policies across countries are actually converging (Drezner 2001). Additionally, this study will help address the paucity of corporate governance research conducted in the West Indies. Two competing propositions are evaluated. The first postulate asserts that actual audit committee practices of public companies operating in the West Indies will be similar to those regarded as IBP due to globalization-induced, pro-convergence factors including competition, imitation, trade and capital mobility that naturally operate to produce convergence of institutions and policies across nations and firms (Berger 1996). The second postulate argues that despite the converging influences associated with globalization, states retain considerable policy autonomy which when taken together with the market imperfections and the apparent preference for a laissez-faire approach to the issue of corporate governance, hinder the adoption of IBP of corporate governance. As a result, the actual practices implemented by the audit committees of companies that are operating in the West Indies are likely to differ from IBP. The remainder of this paper is organized as follows: in section two we describe the nature and purpose of corporate audit committees and the theoretical arguments underpinning their existence. In section three we discuss the impact of globalization on audit committee practices in the West Indies and develop the research questions that will guide the study. In section four we describe the research methodology. Section five contains the findings of the study and the paper concludes with a discussion of the findings.

Nature and Purpose of the Audit Committee Audit committees are a key element of the corporate governance infrastructure in many states with market-based economic systems. AngloAmerican corporate governance systems in general, and audit committees in particular, are intended to resolve or mitigate problems of coordination and control caused by the separation of ownership and control in the modern corporation and to protect the interest of owners and other stakeholders (Jensen and Meckling, 1976). The cost of designing and administering these systems and the value lost because of the remaining self-interested opportunism by agents that cannot be eradicated are the “agency cost” that rational investors must take into account when pricing the securities of companies. From this perspective the primary purpose of corporate governance is:

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...to create cost-effective monitoring, bonding and incentive systems that will reduce the amount of foregone value associated with the separation of ownership from control (Kester 1996: 118).

This need for shareholder protection has traditionally been explained using Agency Theory.7 According to Jensen and Meckling (1976: 305) “agency theory views an organization as the nexus of contracts among owners of the factors of production” (and customers). Jensen and Meckling (1976) also suggested that these contracts are necessary because decision management skills are not a necessary consequence of wealth or willingness to bear risk, and do not necessarily reside with the owners of the firm. They noted that even when owners possess decision-making skills, they might be unwilling or unable to devote the time required to effectively discharge the management function. As a result, specialization of decision management and residual risk bearing is an established feature of modern corporations. Agency contracts specify the rights and responsibilities of each agent in the organization, performance criteria on which agents are evaluated and the payoff function they face (Jensen and Meckling 1976). According to Jensen and Meckling (1976) the contract structure combines the available production technologies and external legal constraints to determine the cost function for delivering an output with a particular organizational form. The central contract in any organization specifies the nature of the residual claims and the allocation of the steps of the decision process among agents (Fama and Jensen 1983). Fama and Jensen (1983) also noted that the central contract of large corporations limit the risks undertaken by most agents by specifying a mix of fixed promised payoffs and incentive payoffs tied to specific performance measures. They asserted that the residual risk is borne by the common shareholders who contract for the right to the net cash flows of the organization. According to Fama and Jensen (1983), in order to compensate owners for assuming the residual risk, agents agree that the resources they provide will be used to satisfy the interest of residual claimants. In this context it is argued that the separation of ownership from the control (decision making) function in corporations creates the potential for conflict of interest between owners and managers if the goals of the respective groups are not properly aligned. Also, it is asserted that 7

Under the agency theory model, the primary reason for managerial inability to achieve the objective of principals is self-serving opportunistic behavior. Factors such as low ability, lack of knowledge and poor information are generally ignored.

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information asymmetry between owners and managers make it relatively attractive for managers to seek their own interest at the expense of owners.8 Therefore, owners incur costs to structure and monitor contracts and to bond managers to keep them from taking actions contrary to the best interest of owners.9 One of the key strategies employed by owners to reduce the probability of such opportunistic behavior by managers is the separation of the ratification and monitoring of decisions (a function of the BOD) from the initiation and implementation of decisions (an executive management function). According to this strategy, while individual decision agents may be involved in the management of some decisions and the monitoring or ratification of others, they should not exercise exclusive management and control rights over the same decisions. Separation of decision management from decision control at all levels of the organization helps to control agency problems by limiting the power of individual agents to expropriate the interests of shareholders. Without such separation, owners have little protection against potential opportunistic actions by decision agents and would risk lower returns on their investment. Appropriately constituted audit committees enhance the separation of decision control and ratification functions. The presumed benefits of audit committees are frequently attributed to the operation of two forces. First, they provide a forum for concentrated attention to be devoted to issues that are challenging to the full board of directors, many of whom are not financially literate (Walker 2004). Secondly, audit committees enable the non-executive directors to contribute their independent judgment to the board of directors and offer the auditors a direct link with non-executive directors (Cadbury 1992). Arguably the greatest impetus for the establishment of audit committees internationally has come from regulatory requirements following corporate financial scandals and crises (Walker 2004; Wolnizer, 1995). From its inception in the late 1930’s regulators have viewed the audit committee as a major mechanism for safeguarding the public’s interest in commercial enterprises by promoting reliable financial reporting and generally protecting shareholders (and other stakeholders) 8

According to Fama and Jensen (1983: 302) the separation of these functions persist despite agency issues/problems because the benefits of this specialization outweigh the costs allowing large modern organizations to deliver the outputs demanded by customers at the lowest price while covering costs. 9 Agency costs also include the cost (value) of output lost because the costs of full enforcement of the contracts exceed the benefits.

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from the potentially devastating economic, social, and political consequences associated with major corporate financial scandals (Birkett 1986, Goddard and Masters 2000, Walker 2004). Initially audit committees were expected to meet with, and focus on matters raised by, the external auditors. However, the responsibilities of audit committees have evolved to include the oversight of many aspects of the management of public companies (Walker 2004). These responsibilities are usually accomplished by having the audit committee oversee the financial reporting of firms, assessing processes related to the company’s risks and control environment and evaluating the internal and independent audit processes (KPMG 1999: 5). The specific approach used by an audit committee to discharge its mandate, and its success in so doing, varies according to the clarity of its mission, the knowledge, skills and abilities (tough-mindedness, inquisitiveness, commitment, independence, technical expertise) of its members, and the tone at the top of the corporate governance structure (KPMG 1999). The next section of the paper examines two competing perspectives on the likely development of AC practices in the West Indies. This is followed by an examination of the actual practices of audit committees of firms operating in the West Indies and the USA to see which of the two perspectives is supported.

Globalization and Convergence of Audit Committee Practices Internationally As used here globalization refers to “major increases in worldwide trade and exchanges in an increasingly open, integrated and borderless international economy” (Intriligator 2003: 1). Globalization is also associated with increasing interconnectedness among states, organizations and peoples (Luttwak 1999). Additionally, it involves the broadening of the range of items involved in trade and exchanges to include not only traditional goods and services but also currencies, capital flows, technology transfers, people moving through international trade and migration and international flows of information and ideas via the internet, satellites campuses of international universities and cable television (Intriligator 2003:1). Several factors associated with globalization have the potential to facilitate the convergence of corporate governance practices in developing countries toward International Best Practice.

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According to Williamson (1996) globalization leads to convergence through competitive market pressures that emphasize “best practices”. This competition may lead to convergence, in part, because certain features of each system, which are seen to have decisive advantage in solving certain kinds of problems, are borrowed and imitated by states and firms (Berger 1996). One factor promoting convergence of corporate governance practices is the increasing scope and importance of multinational corporations (MNC) and other commercial entities, such as public accounting firms. These organizations, which continue to be domiciled in developed nations, are now central agents of the global economy with the desire, and power, to require their subsidiaries and business partners around the globe to adhere to the corporate governance practices of the multinational company. For instance, it is not uncommon for agreements concerning such foreign direct investment (FDI) undertaken by MNC to specify detailed administrative requirements for the affiliated company (Berger 1996). As a result, the corporate governance practices of firms operating in developing nations may be similar to those of developed nations (Higgott 1999). Another category of multinational enterprise that may have a converging influence on corporate governance practices is the Big 4 and other international public accounting and consulting firms. As the auditors of multinational corporations and the larger domestic companies in developing countries, these enterprises have a vested interest in aligning the corporate governance systems across countries as this serves to reduce the risk of audit failure and enhance audit efficiency. Furthermore, as consultants these firms have the ability to persuade the leaders of publicly traded firms in developing countries to adopt international best practice of corporate governance (Banz and Clough 2002). A second factor associated with globalization that may promote the convergence of corporate governance practices is the increasing importance of computer and communication technology and the Internet. These technologies have transformed the manner and pace at which ideas are disseminated from the developed to the developing world and vice versa. Business executives, the investing public and the general public in the WI now have access to continuous 24-hour per day coverage of business news via audio-visual and print media transmitted by cable

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television and the Internet, respectively. Such access has the potential to increase the awareness of the West Indian public about the nature of, and rationale for international best practice of corporate governance. In turn, this greater awareness and understanding may promote the adoption of international best practice of corporate governance by domestic companies in the West Indies. This thesis is supported by Drezner (2001: 56) who asserted that: ...the ability of ideas to permeate across borders has existed for centuries, but advances in telecommunications and computers have made the process much easier.

Technological advances have also allowed tertiary education institutions and consultants from developed western nations (in particular the USA, UK and Canada) to sell their “wares” at a distance. This development has made it easier and cheaper for persons in developing nations to access the programmes offered by international institutions. Since such programmes tend to espouse the prevailing requirements and practices found in developed nations, they may enhance the willingness and capacity of participants to implement similar ideas in domestic firms. A third factor associated with globalization that may promote the convergence of corporate governance practices is the endorsement of the IFAC best practice guidelines by international institutions such as the International Monetary Fund (IMF), the World Bank and the World Trade Organization. Such endorsements have enhanced the perceived legitimacy of these corporate governance practices. These institutions argue that the International Best Practice guidelines have proven their effectiveness and, by adopting them, developing nations will upgrade their own systems at reduced cost and in a timelier manner than would otherwise be possible. It is also suggested that by adopting the best practice guidelines, developing nations can attract capital flows on more favorable terms (Banz and Clough 2002; Drezner 2001). Based on this conviction, international institutions have used moral and economic suasion to influence political and business leaders in developing states to adopt international best practice on audit committees. Additionally, some firms may proactively and voluntarily adopted international best practices of corporate governance to enhance their image as leaders/innovators in the local economy and their attractiveness as venues for capital inflows (Staking and Schulz 1999). According to this argument, one of the primary forces for convergence is economic; the pressure to modify policies and practices come from the threat of mobile

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capital to exit, causing non-converging firms to lose their competitiveness in the global economy (Drezner 2001). In the long run, the owners of capital will seek to invest in locations where their capital can earn the highest risk-adjusted rate of return. Other things being equal, it is unlikely that such jurisdictions will be characterized by lax corporate governance practices as these raise monitoring costs and lower profits. Therefore, the owners of capital are likely to engage in corporate governance arbitrage, shifting their investment from firms (states) with lower corporate governance standards to those with higher standards. Alternatively, they may demand higher returns to stay put (Drezner 2001). The voluntary adoption of international best practices on audit committee may also be influenced by the perception of West Indian firms that given the dependant nature of most regional governments it is only a matter of time before international best practices of corporate governance are adopted as national policy. Early adoption affords firms a longer transition period. The voluntary adoption of international best practice of corporate governance may also be encouraged by the warnings frequently issued to potential investors by institutional and other large shareholders and regulators in developed states to be mindful of inadequate listing and financial reporting requirements and other corporate governance systems in emerging markets. Further impetus may be provided by recent initiatives by West Indian firms to expand into new markets and the globalization of stakeholders that this promotes. As the stakeholders of West Indian firms become more global in nature they may demand that domestic firms implement practices similar to those used by other global firms in which the said stakeholders have an interest. The propensity of firms in the West Indies to adopt best practice on audit committees may be increased/influenced by the small, open nature of their economies and their colonial history. Additionally, based on Drezner’s (2001) thesis the relatively weak position of West Indian states in international negotiations, provide fertile ground for the operation of (market-led) spontaneous convergence of audit committee practices.

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Proposition 1 Based on the preceding arguments we expect the actual audit committee practices used by publicly traded firms in the West Indies (with its relatively lax corporate governance regulations) to be similar to those regarded as international best practice and the practices of firms in the United States (which has a more comprehensive and formal corporate governance system).

Regulatory Fiat and Convergence Conversely, it is often argued that despite the fact that heightened international business competition and cross-border investment are providing incentives for firms in developing/emerging economies to adopt international best practice of corporate governance, the realization of convergence may require legislative and/or regulatory action by states (e.g., Banz and Clough 2002, Berger 1996, Friesen 2003, Higgott 1999). For instance, both Berger (1996) and Higgott (1999) contended that convergence of corporate governance systems toward international best practice may depend on a combination of market forces, abetted by complicit or passive governments, internationally negotiated or coerced choice of one set of rules and institutions and contractual requirements, rather than the exclusive operation of market forces as postulated above. A similar point was made by Friesen (2003) who noted that while trade between sovereign states inevitably seems to trigger convergence of local lifestyles, fads, social mores, political ideologies, and corporate governance practices, such convergence usually also requires formal negotiations and agreements. Friesen (2003) also asserted that the need for this mix of spontaneity and deliberate regulatory intervention for convergence to occur is seen for example in the creation and enforcement of international accounting standards, anti-trust and banking regulations. This assessment is supported by the experiences of West Indian states with the adoption of International Financial Reporting Standards (IFRS). In that case, despite the standards being readily available, endorsed by international agencies, and having several positive spin-offs for domestic firms, they were not “fully” or effectively adopted. Instead most publicly listed West Indian firms chose to adopt only selected elements of certain standards doing just enough to say they use the standards (Bowrin 2004).10 10 It has been suggested that national chauvinism may hinder voluntary convergence of corporate governance and other economic systems (Banz and

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Also, Drezner (2001: 74) argued that “the uneven pattern of success in deforestation prevention correlates directly with the extent of World Bank leverage over recipient states.” Additionally, the role of imitative forces in the convergence of corporate governance practices may be hampered by the difficulty encountered in trying to determine which states and practices are successful at protecting stakeholders. Key constituencies in the West Indies may be tempted to ask, (naively or conveniently so), whether the audit committee practices that are endorsed as international best practice are really effective, and or necessary, in their environment. Such questions could be related to the fact that the states that developed and implemented them have experienced more large-scale corporate scandals than the West Indian states. While the greater frequency of occurrence of such events in developed states may be due to the greater transparency of their governance systems and the greater effectiveness of compliance monitoring, the perceptions of developing state actors may differ. In their eyes, the fact that they have not experienced a major corporate scandal recently, while the developed western states have seen several, may signal that the corporate governance systems in the West Indies are more effective that those of the developed states (rather than the more plausible explanation that their systems are less effective at detecting major regulatory breaches). As a result, firms in the West Indies may be reluctant to mimic the international best practice on audit committee. The convergence of corporate governance practices may also be hampered by the fact that supra-national institutions such as the IADB, the IMF and the World Bank, which promote the adoption of international best practices of corporate governance, are yet to require the adoption of detailed corporate governance practices as a pre-condition for states to access their programmes.

Proposition 2 Based on the preceding arguments, one may expect the actual audit committee practices used by firms in the West Indies (states with relatively lax corporate governance regulations) to be different from those regarded as international best practice as well as those used by firms in the Clough 2002). However, this seems unlikely in English-speaking West Indian states given their propensity to assign higher value to “things foreign” and their relatively weak position in international negotiations.

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USA (states with more comprehensive and formal corporate governance requirements).

Methodology Selection of Companies and Years Examined USA Companies: Using Research Insight (version 7.6), forty NYSE companies were randomly selected. The NYSE companies were selected because they are required to comply with more demanding listing requirements than firms listed on either the AMEX or NASDAQ. As a result, it was expected that NYSE companies would be leaders in terms of corporate governance procedures. Nineteen ninety eight were chosen as the comparative year for US companies because it was the last full year prior to the issuance of the Blue Ribbon Committee Report on Improving the Effectiveness of Corporate Audit Committees (BRCR). As such US firms would have been governed by less stringent AC guidelines than during the post-BRC period and may represent a more conservative benchmark for comparing WI companies than the IBP guidelines.11 West Indies Companies: All companies listed on one of the four West Indian stock exchanges were considered for inclusion in the study. However, the sample was eventually restricted to companies listed on the Barbados Stock Exchange (BSE) and the Trinidad and Tobago Stock Exchange (TTSE). This decision was taken because the Jamaica Stock Exchange (JSE) does not require companies to have audit committees and the Eastern Caribbean Stock Exchange only commenced operation in November 2001 and only two companies were listed in 2002. The entire population of 53 companies listed on the TTSE and the BSE in 2002 was eligible for inclusion in the study. A list of these companies was obtained from the websites of the exchanges. The final sample comprised 43 companies. The remaining ten firms were excluded after several attempts to secure a copy of their annual report proved futile. A date after 1998 (the year in which the recommendations of the Blue Ribbon Commission were publicized, 2002 was chosen as the comparison year for WI companies for two reasons. First, it was necessary to allow some time for the thesis 11

The high degree of similarity of AC practices by USA firms in 1998 and the IBP based on the IFAC report suggests that the practices sanctioned by the IBP guidelines were in the public domain prior to the issuance of the report and therefore 1998 is an appropriate comparison year though it predates the IFAC report.

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proposing convergence of audit committee practices to take place. Secondly, it was decided to use the latest year possible before the provisions of the Sarbanes-Oxley Act (2002) took effect.

Procedure Used to Determine Audit Committee Requirement The audit committee requirements for firms in the WI were determined by reviewing the Companies Acts of Antigua-Barbuda, Barbados, Grenada, St. Lucia and Trinidad and Tobago and the Securities Industry Acts of Barbados, Trinidad and Tobago and the Eastern Caribbean. The audit committee requirements for US companies were determined by reviewing the Securities and Exchange Commission regulations on audit committee disclosure (SEC 1999a-d) and reflect the amendments made to give effect to the recommendation of the Blue Ribbon Commission.

Procedure Used to Determine Actual Audit Committee Practices – Data Source For the WI sample, data was collected primarily from the 2002 annual reports of the sample companies that were filed with the two WI stock exchanges. Some data also came from the companies’ website. For the USA sample, data was collected through either the company’s website or the Securities and Exchange Commission’s (SEC’s) website. The primary source document was the company’s proxy statement issued for the fiscal year 1998. Some data came from the company’s audit committee charter, which was usually referenced in the proxy statement. For the WI sample, two researchers independently read a clean copy of the entire annual report of each company and highlighted all information relating to audit committees. Next, the highlighted information was examined to determine which of the international best practice each firm adopted. Each researcher coded each occurrence of an international best practice in the annual report. Later, the findings of both researchers were compared for consistency. Both researchers reviewed each discrepancy uncovered during this comparison and reached a common position. Finally, the AC practices noted for WI firms were compared with the IBP guidelines and the practices of US to determine the extent to which they are similar.

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Data Analysis and Results The data analysis was mainly restricted to the tabulation of audit committee practices and the comparison of the frequency counts for firms operating in both jurisdictions. The information obtained in this process was critically assessed to determine which of the two competing research proposition was supported.

Description of Sample The average firm in the West Indian sample (n=43) had gross revenues of $129.5 in 2002 (Median = $55.8M; SD $142.3M; Range = $3.2M$383.3M) and average total assets of $648 (Median = $36.6M; SD = $1,762.6M; Range = $3.1M-$4,824.3M). The US companies were larger than their WI companies. The average company in the US sample (n=40) had sales of $6,130.8M in 1998 (median = $516M; SD = $22,809.8M; Range = $3.8M-$142,666M) and average total assets of $9,715.8M (Median = $1,597.7M; SD = $37,380.4M; Range = $35M-$237,545M). This size difference is not a major cause for concern since the samples are drawn from independent populations that are known to vary in size. Thus the samples can be regarded as representative of the respective populations. Further, corporate governance practices are more a function of financing pattern than firm size (Nobes 1998).

International Best Practice Guidelines for Audit Committees Best practice for the purpose on this study is a set of recommended practices developed by a body or organization with broadly recognized standing and expertise in the area of audit committee effectiveness. The following description of International Best Practice (IBP) guidelines on audit committees are based on the recommendations contained in the report of the IFAC Task Force on Rebuilding Public Confidence in Financial Reporting (2003). The recommendations were developed by the IFAC task force after reviewing regulatory requirements and reports issued by national and international bodies and proposals that have been adopted or are being considered in Australia, Canada, France, Japan, the United Kingdom and the United States. The Task Force also considered developments from international bodies such as the Financial Stability Forum, the International Organization of Securities Commissions

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(IOSCO), the European Commission, the International Accounting Standards Board (IASB) and IFAC.12 The IBP guidelines on AC are presented in column 1 of Table 1.1–1.4. They address a myriad of issues that are likely to impact on the effectiveness, efficiency, accountability and transparency of corporate entities. The guidelines span the following areas: responsibilities, criteria for membership, processes (meetings, reviews, etc), remuneration, resources (budgets), and sanctions (including legal liability) ( see Appendix1).

General Guidelines As shown in Table 1.1 IBP guidelines provide that all publicly listed firms must have an Audit Committee (AC). The AC is required to meet regularly i.e., at least as frequently as the firm is required to publish financial information and to devote sufficient time to perform its role effectively. The AC is also required to have a formal charter that is approved by the full board of directors. The AC charter must specify the AC’s structure, the nature and scope of its responsibilities, criteria for membership and the processes to be used to discharge its responsibilities. The AC charter should also be reviewed for adequacy and revised, if necessary, by the BOD annually.

Responsibilities–External Auditors The IBP guidelines on AC responsibilities relating to external auditors, internal auditors and the financial statements are presented in Table 1.2. They provide that the AC should be responsible for hiring, evaluating the performance of, and the replacement of, the external auditors in consultation with the full BOD and subject to ratification by the shareholders of a firm. The AC is also required to recommend the external audit fee to the BOD, approve non-audit services provided by the external auditor and ensure that the external auditor periodically submits (to the AC) a formal written statement of all its relationships with the company. Furthermore, the AC is required to use this and other relevant information to assess the potential impact of relationships between the External 12 Walker (2004) developed a set of audit committee best practices that differs in some material respects from those indicated below. However, those suggestions are not included in this paper because the international Corporate Governance community has not officially endorsed them.

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Auditor and the Company on the objectivity and independence of the External Auditor. Additionally, the AC must conduct a comprehensive review of the total audit relationship, including aspects of both cost and quality, at regular intervals. Finally, the AC is required to ensure that key external auditor personnel are only hired by the company after specified cooling-off periods have elapsed (Appendix 2).

Responsibilities–Internal Auditors The IBP guidelines (see Table 1.2) specify the AC’s responsibilities regarding the internal audit function. First, the AC is required to approve the terms of reference/charter of the internal audit function. Secondly, the AC must perform regular assessments of the adequacy and appropriateness of the resources being devoted to the internal audit function. Thirdly, the AC must be consulted on the appointment and termination of the Head of the internal audit unit.

Responsibilities–Financial Statements The IBP guidelines further suggest that the AC must report regularly to the full BOD and review the financial statements of the company (year end and interim) before the BOD approve them.

Composition and Competencies The IBP guidelines on AC composition and competencies are summarized in Table 1.3. They provide that all the members of the AC must be independent13 and financially literate, which is generally interpreted as being able to read and understand general-purpose financial statements. Also, at least one member of the AC must be a financial expert14 ( Appendix 3). 13 That is, they should not be past employees or officers, persons with current or past material business relationships, persons with family ties to directors, senior employees or advisors, persons with more than 10 years tenure on the BOD, representatives of significant shareholders (Higgs Report 2003) 14 This is generally interpreted as follows: past employment experience in finance or accounting, requisite professional certification in accounting, other comparable experience or background which results in the individual’s financial sophistication, including past or present as a CEO, CFO, other senior officer with financial oversight responsibilities.

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Procedures Table 1.4 summarizes the IBP guidelines on AC in the areas of procedures, resources and disclosures. According to these guidelines the AC must hold regular private meetings (in the absence of management) with the External Auditor, the Head of Internal Audit and the Chief Financial Officer, respectively. Additionally, the AC is required to meet at least one per quarter with the External Auditor (four times per annum). International Best Practice also requires the full BOD to devote adequate time to the discussion of the reports of the AC.

Resources To successfully discharge its responsibilities, the IBP guidelines also suggests that the AC have access to independent expert advice and receive regular reports from management and the auditors covering material items, areas of concern and disputes.

Disclosures According to the IBP guidelines, the BOD is required to provide written affirmation of the existence, functioning and composition of the AC; and the literacy, expertise and independence of AC members. Also, the AC is required to disclose its approval of the employment by the company of individuals who played a key role on the firm’s audit in the recent past. Additionally, companies are required to disclose the amount of audit and non-audit fees paid to the external auditors and a detailed background of all AC members to facilitate shareholders’ assessment of their competence. Finally, companies are required to disclose any noncompliance with IBP on AC (see Appendix 4). Though the guidelines are generally at the cutting-edge of audit committee practices, they have at least three shortcomings. First, the guidelines are silent on the need for appropriate delegation between the BOD and executive management. In particular, no mention is made of the need for the BOD to reserve the authority to approve certain types of transactions. This is an internal control issue that was a major area of weakness in many recent corporate failures and is potentially important for effective corporate governance. Secondly, the IBP guidelines do not effectively address the need for high quality information by senior management and the BOD. The guidelines do not require the audit committee to evaluate the quality and

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or quantity of information provided to the BOD. This shortcoming threatens the quality of organizational decision-making and control at the highest level. Thirdly, the guidelines do not address the need for proper oversight of subsidiaries or associated entities, which can have a major impact on the affairs of the consolidated entity. At a minimum, the audit committee may need to review the accounts of the individual subsidiaries that are to be consolidated to ensure consistency of accounting policies. Alternatively, it may rely on the existence and activities of audit committees in subsidiaries and associated companies that are composed of external directors with appropriate competency. Notwithstanding these shortcomings, the IBP guidelines on audit committees are very comprehensive and will be used as a benchmark in this study.

Compliance of West Indian15 Audit Committee Regulatory Requirements with International Best Practice Consistent with the general requirements of the IBP guidelines on AC reported in Table 1.1 above, states in the West Indies require all publicly traded companies to have AC. However, this is where the similarity ends as almost no attempt has been made by these states to specify what AC should do or report. As a result, almost no requirements have been established concerning audit committee responsibilities or disclosures in the WI. Firstly, contrary to the IBP guidelines, states in the West Indies allow publicly traded companies to seek exemption from the requirement to have an audit committee and do not require firms to disclose if they have an audit committee or to explain when they not have one. Secondly, states in the West Indies do not explicate the need for the AC to meet regularly or to devote sufficient time to perform its role effectively. Thirdly, there is no requirement for the ACs of publicly listed companies in the West Indies to have a charter or for their charter to specify the scope of their responsibilities and how they are to be 15

Dominica, Grenada, St. Lucia and Antigua Barbuda have identical regulatory requirements relating to the ACs of publicly listed firms. These countries are not included in this study because at the time of the study there was no establish market for trading in securities in any of these countries. On the other hand, Jamaica, St. Kitts Nevis and St Vincent and the Grenadines have not enacted legislation concerning ACs.

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discharged. Also, the BOD of public traded companies in the West Indies are not required to approve, review or periodically assess the adequacy of terms governing the operation of the AC as is required under IBP guidelines. Fourthly, unlike the IBP guidelines, which provide specific guidelines on the structure, processes and responsibilities of the AC, as well as the disclosures it must provide, the regulatory framework of states in the West Indies is largely silent on these issues. The specific findings of our review of the regulatory framework in West Indian states are summarized in column 2 of Tables 1.2–1.4 and are described below.

Composition The regulatory requirements of states in the West Indies regarding AC composition are not consistent the IBP guidelines. Whereas the IBP guidelines require all members of the AC to be independent, the legislation of states in the West Indies only require that a majority of AC members be independent. Further, the definition of independence contained in WI legislation is much narrower than that suggested by the International Best Practice literature. While the WI states define independence in term of only being a current employee or officer of the focal company or its affiliates, the IBP definition also includes past employees and officers, persons with current or past material business relationships, persons with family ties to directors, senior employees or advisors, and representatives of significant shareholders. Additionally, unlike the situation, which obtains in the West Indies, the IBP guidelines explicitly allow the BOD to identify additional threats to independence.

Competence The regulatory framework in the West Indies is silent on the issue of the competence of AC members. The concepts of financial literacy and financial expertise are not address and there is no requirement regarding the need for any AC members to be financially literate or possess financial expertise as is stipulated by IBP guidelines.

Responsibilities–External Auditor The only best practice responsibility contained in the AC regulations in the West Indies is the need for the AC to review the financial statements

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of the company before the BOD approves them. The regulatory framework is silent on the issue of the responsibilities of AC regarding the external and internal auditors and the frequency of reporting to the full BOD.

Procedures The West Indian AC regulations stipulate that external auditors must be notified of every meeting of the AC and are entitled to attend at the company’s expense if requested by an AC member. The regulation is silent about the best practice requirements of whether, and how frequently, the AC meets privately with the external auditors, the Head of internal audit or the CFO.

BOD Reporting on the Audit Committee The West Indian regulations do not require companies to provide any disclosures regarding the existence, structure, procedures, competence, responsibilities, or resources available to the AC. There are also no provisions for the disclosure of non-audit fees paid to the external auditors. Additionally, companies are not required to publish the AC charter, or to disclose any non-compliance with the IBP guidelines.

Resources Audit committee regulations in the West Indies do not provide for the AC to have access to regular reports from management and the auditors concerning areas of dispute, concern or major accounting judgment and estimates. They also do not require companies to provide the AC with access to independent expert advice to facilitate the effective discharge of its responsibilities. Furthermore, the AC’s reports to the BOD are not guaranteed to receive adequate attention, as the regulations do not require the BOD to devote adequate time to the discussion of AC reports. The findings presented above support the assertion that states in the West Indies are characterized by a laissez-faire system of corporate governance. There are at least three possible explanations for this lax state of audit committee regulation in the West Indies. Firstly, it may be that stakeholders (e.g., legislators, regulators and publicly listed companies) do not fully appreciate the importance of ACs to effective corporate governance. Based on this explanation regulators in the West Indies may

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have been responding to the fad of the day when they made it mandatory for public companies to have ACs. Alternatively, it may be that legislators and regulators recognize the importance of audit committee to effective corporate governance in principle, but in their estimation the circumstances in the region is such as to minimize the importance of audit committees, probably because other mechanisms are present to fulfill its role. It may also be the case that regulators in the West Indies recognize the importance of audit committees for effective corporate governance and are aware of the need for such regulation in the region but are lacking the will and or the resources to implement the reforms that have been identified as IBP. Finally, it may be that the key stakeholders in WI states believe that it is not necessary to legislate / regulate the specific AC requirements because the forces of globalization would promote the convergence of local practices toward the IBP guidelines.

Compliance of US Audit Committee Regulatory Requirements with International Best Practice As shown in the final column of Tables 1.1–1.4 the AC requirements of the US were generally either consistent with, or more demanding than the IBP guidelines. The pre-Sarbanes-Oxley US requirements clearly defined the concepts of financial literacy, expertise and independency, while the international best practice merely identifies general threats to independence and is largely silent on financial literacy and expertise. The high degree of similarity between the US AC requirements and the requirements of the IBP guidelines may be related to the fact that the US has experienced several major corporate failures involving economic losses over the years. As a result, considerable political pressure has been brought to bear on US regulators to modernize its corporate governance infrastructure. As a result, the US continues to be a leader in corporate governance and its requirements have had a major effect on the content of the IBP guidelines.

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Actual Audit Committee Practices in West Indian States The practices adopted by firms in the West Indies were not generally consistent with the IBP guidelines.16 The actual AC practices of firms operating in the West Indies are described below.

General Disclosures / Practices Of the 53 companies traded on the BSE and or the TTSE (the two West Indian stock exchanges included in this study) in 2002, forty-three were included in this study.17 Seven firms were listed on the two exchanges included in this study. First, twenty-three (53.5%) of the 43 firms traded on the West Indian stock exchanges did not disclose whether they had an audit committee. Secondly, among the twenty firms (46.5%) that disclosed the existence of an AC the level of disclosure about the composition, procedures, competencies, responsibilities, and resources was low. Eighteen firms disclosed the number of members comprising the AC (Mean = 3.67, Range = 3–7). Only four firms disclosed the number of meetings held by the audit committees during the year (Mean = 5.25, range = 3–2) and one firm published its AC charter in the annual report for 2002. Furthermore, all the requirements concerning the content and review of the charter were not disclosed by any of the firms.

Composition and Competence Thirteen firms disclosed the number of AC members who were insiders (mean = 1; range 0-4), and the AC of six firms had at least one insider member; eight firms disclosed the number of independent AC members (mean = 2.75, range = 1-6). One firm disclosed the tenure of the AC chairperson (13 years on BOD). Only one firm each disclosed the ages of its AC members and the number of AC members with greater than 10 years tenure on the BOD (2). Nine firms disclosed the number of outside AC members (mean = 2.44, range = 1-4). Thirteen firms disclosed the number of financially literate AC members (Mean = 3.08, range = 1-5). Eight firms disclosed the number of AC members with financial expertise (mean =2.75, range 1-5). Consistent 16

See Appendix 1 for details of the practices adopted by firms operation in individual WI states. 17 Despite numerous attempts we were not able to get a copy of the financial statements of the remaining 10 companies.

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with the requirements of IBP, these nine firms each had at least one member who was a financial expert.

Responsibilities The level of disclosure was even poorer in the area of AC responsibilities. Only two companies disclosed the specific responsibilities of their AC. One firm disclosed that the AC was responsible for the review of non-audit services provided by the external auditors but all the companies were silent regarding whether the AC was responsible for, or consulted on the appointment, evaluation, termination, or establishment of compensation for the external auditors. There was also no disclosure regarding whether the AC periodically conducted a comprehensive review of the total audit relationship, including aspects of both cost and quality. None of the West Indian firms disclosed whether they observe a coolingoff period before hiring key external auditor personnel. All the companies were also silent on the responsibilities of the AC regarding executive management including the appointment or termination of the CFO. One company indicated that the AC was responsible for reviewing the effectiveness of the internal control system but none of the firms disclosed whether the AC was consulted on the appointment of the head of the internal audit function. All the companies were silent on the other recommended AC responsibilities related the internal audit function. The firms were also silent on the issue of whether the AC reviews the financial statements (interim and annual) before the full BOD approves them.

Audit Committee Procedures Regarding AC procedures, only four companies disclosed the number of meetings held by the AC (Mean = 5.25, Range 3-12). Two companies disclosed that the AC met privately with the head of the internal audit function, the external auditors and executive management. One company reported that the AC met privately with the CFO. Eight firms disclosed the amount of audit fees but all were silent on the amount of total (non-audit) fees paid to the external auditors, while only one firm provided disclosures about the compensation paid to AC members. Four firms disclosed that the CEO was a member of the Nominations Committee of the BOD and therefore in a position to exerted significant influence over the AC. Additionally, none of the firms disclosed whether the AC had a budget for or access to independent expert advice.

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Actual Audit Committee Practices in the US General Disclosures and Practices The level of reporting on AC by US companies was generally in line with the requirements of the IBP guidelines and noticeably betters than that provided in the West Indies. For instance, whereas no firms in the West Indies included a copy of their AC charter in the proxy statement published with the annual report, 38 of the 40 US firms sample did. Similarly, while only 23 firms in the West Indies disclosed the existence of an AC, all the firms in the US sample did.

Composition and Competence All forty companies in the US sample disclosed the number of members comprising the committee, the number of independent members on the committee, the number of “insiders” on the audit committee, the number of “outsiders” on the audit committee and the number of affiliated members on the audit committee. The average US audit committee consisted of 3.53 members (Range 3 -5), had 3.3 outsiders (Range 0–5), no insiders, 0.23 affiliates (Range 0-3) and 3.48 independent members (Range 3–5). Two of the sample firms each had one non-independent audit committee member. Thirty-four of the 40 sample companies disclosed the tenure of the audit committee chairperson (Mean 8.3 years, Range 2–17 years). Of these 34 firms, twelve had AC chairpersons with tenures greater than or equal to 10 years. All forty firms disclosed the number of audit committee members with tenures greater than or equal to 10 years. Twenty firms had at least one audit committee member with tenure of ten years or more (Mean = 1.85, Range 1–4). Every member of all 40 sample firms audit committees was disclosed as being financially literate. Thirty-nine firms disclosed the number of audit committee members who were financial experts (Mean 3.44, Range 2–5). Four firms each had one non-expert audit committee member indicating that 35 firms exceeded the minimum requirements of IBP guidelines. The situation was a lot different when it came to disclosures regarding the resources available to audit committees. Only three and four firms indicated that their audit committee had a budget for procuring independent expertise and had access to independent expertise, respectively.

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Responsibilities All forty firms disclosed the responsibilities of their audit committee. Somewhat surprisingly, while the audit committee of all firms was consulted on the appointment and termination of the external auditors, no firm indicated that the audit committee was consulted on the appointment or termination of the CFO or the head of the internal audit function. Additionally, thirty-six firms indicated that their audit committee reviews non-audit services provided by the external auditors, while 34 firms indicated that the audit committee was responsible for their internal control system. Two firms indicated that their audit committee was not responsible for assuring the integrity of the internal control system.

Procedures The level of disclosure regarding the number of meetings conducted by the audit committee was much higher among US firms than among their counterparts in the West Indies. Thirty-nine US firms indicated the number of meeting held by the audit committee during the fiscal year (Mean = 4.54, SD = 1.86, Range 2–11), the number of meetings held with the external auditors (Mean = 2.4, SD = 1.01, Range 1-4) and the number of meetings held with management (Mean = 2.55, SD = 0.714, Range 1– 3). Disclosures by US firms regarding the number of meeting held with the head of internal audit and the CFO while better than that provided by companies in the West Indies fell short of that required by international best practice. The audit committees of fourteen firms meet with the head of the internal audit function (Mean = 2.43, SD = 1.08, Range 1–4). Only two firms disclosed that the AC meets privately with the CFO (Mean = 4, SD = 0). Unlike their WI counterparts only one of whom disclosed the compensation of its audit committee members, thirty-eight of the 40 USA firms did so (Mean = USD 45,884, SD = USD 27,269). The same number of US firms disclosed both the fees paid to the external auditors for audit services (Mean = USD 1.42M, SD = 3.05M) and the total fees paid to the external auditors (Mean = USD 5.35M, SD = 14.26M). Also, while only four WI firms disclosed that the CEO was in a position to influence the AC, 17 of the 40 US firms indicated that the CEO had influence over the audit committee (i.e., the CEO was a member of the Nominations Committee of the BOD).

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Additionally, the level of disclosure concerning the ages of audit committee members was better for US companies than for their WI counterparts. Thirty-four US firms disclosed the age of their audit committee chairperson (Mean = 64.32 years, SD = 7.41 years, Range 4984) and all forty US firms disclosed the age of the other audit committee members, which ranged from 41 years to 74 years. Furthermore, several US companies seemed to be more concerned with complying with the letter, rather than the spirit, of the AC requirements. Even though most of the US companies had implemented practices and procedures equivalent to the IBP requirements, the vagueness of their disclosures made it difficult for one to assess the adequacy of the resources committed to the discharge of the requirements and their effectiveness. The following extracts are illustrative. Extract 1: The audit committee has the power to oversee the retention, performance and compensation of the independent public accountants for our company, and establish and oversee such systems of internal accounting and auditing control, as it deems appropriate. The audit committee held no meetings during 1998.

The above disclosure causes one to wonder how effectively the audit committee carries out its responsibilities without holding any meetings, even though it is reassuring to know that it has the power to carry out its responsibilities. Extract 2: The audit committee, which currently consists of [three members are named] oversees the activities of the Company’s independent auditors and recommends the engagement of auditors…and during the fiscal year 1998…the audit committee met two times.

Here again the disclosure is very vague. There is no mention of meeting with the CFO, the internal auditor or the external auditors or of review of internal controls. Extract 3: The Board’s Audit Committee consists of [two members are named]…the audit Committee met twice during 1998; [one audit committee member named] attended all of the meetings and [the second audit committee member is named] attended one of the two meetings.

This disclosure suggests that one of the two audit committee meetings was attended by only one of the two audit committee members. Extract 4:

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Chapter Ten The Board has and Audit Committee…that reviews the functions of management and the independent auditors pertaining to the financial statements and performs such other duties and functions as are deemed appropriate by the Audit Committee or the Board…

This report could have been much more specific about the duties of the audit committee and how they are discharged. The user is left unclear about whether the audit committee reviews internal controls and whether it meets with management and other key players in the reporting process in the discharge of its duties.

Summary, Discussion and Conclusions Summary The developed Western world has recently witnessed considerable change in corporate governance practices following a series of massive corporate scandals and failures. Many of the changes involve widening of scope of responsibility, accountability and transparency of the BOD as the primary safeguard of shareholder interest (Kester 1996). One of the most visible and widely discussed changes involved the strengthening of the role of corporate audit committee by making their responsibilities more concrete, providing them with adequate resources, increasing reporting requirements and strengthening their incentives, both positive and negative. While these changes have been imposed on firms in the USA, they remain discretionary for firms operating in the WI. This study examined the relative effectiveness of these two implementation approaches by comparing the extent to which firms in the US and in the West Indies have implemented the IBP guidelines. Our review of the regulatory requirements and actual practices in the US and the West Indies relative to the IBP guidelines revealed the following: Statutory Requirements vs. IBP 1. 2.

The US, similar to the IBP guidelines had a very comprehensive set of AC requirements for both what audit committees do and what they disclose to stakeholders. The audit committee requirements of the USA are consistent with and in a number of areas beyond the requirements of the IBP guidelines.

Audit Committees and Globalization

3.

4.

249

Contrary to the IBP guidelines the AC requirements of West Indian states were almost non-existent and very ad hoc. Firms in the West Indies had almost total discretion regarding what their audit committees do and what they disclose. There was more variability in audit committee practices of companies operating in the West Indies than in those of their counterparts in the US. Only three of the 43 West Indian companies that disclosed the existence of an audit committee were in compliance with the majority of the IBP guidelines. This finding is consistent with the laissez-faire nature of the AC environment in the West Indies described in item three above.

Actual Audit Committee Practices 5.

The practices adopted by the audit committees of firms operating in the West Indies (a laissez-faire environment that is almost totally devoid of AC regulations) were not generally in compliance with the IBP guidelines. 6. The actual audit committee practices of publicly traded US firms (a heavily regulated environment) were generally in compliance with or exceeded the IBP guidelines. Conversely, the disclosures provided by US firms were often very vague inhibiting their usefulness. These findings are not consistent with the spontaneous convergence thesis of proposition 1. Conversely, they provide support for proposition 2, which asserts that convergence of AC requirements and practices is not spontaneous but depends on specific regulatory requirements and a systematic and effective compliance-monitoring regime. Both these attributes were present in the US, and US firms were in compliance with the IBP guidelines on audit committees. Both features were absent in the West Indies, and not surprisingly, West Indian firms were generally not in compliance with the IBP guidelines. Supporters of the laissez faire WI approach to CG may argue that this is not a major issue since most of the provisions of the IBP framework have not been empirically proven to be related to better CG or firm performance. Supporters may also point out that WI firms have a better track record than their US counterparts in terms of fewer cases of bankruptcy, fraudulent financial reporting, environmental violations and other anti-social behaviors. However, this may be an artifact of the relative

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lack of compliance monitoring in the WI rather than a lower incidence of such behaviors.18

Discussion and Conclusions According to Walker (2004), during the 1970s when audit committee responsibilities were very limited it was suggested that they should meet four to six times per year, escalating to monthly if they were to assume responsibility from internal auditors and become involved in an organization’s public reporting, operations, policies and procedures. The finding that only four WI firms disclosed the number of meetings held by AC during the year limits the extent to which external stakeholders can assess whether ACs are devoting adequate time to the discharge of their responsibilities. Furthermore, the finding that WI ACs met on average 5.25 times per year compared to the 4.54 times for US firms while favorable is not very reliable given the small number of reporting firms. Also, if we assume that it is representative the finding may suggest that neither US nor WI ACs may have devote adequate attention to their wide ranging responsibilities during the period leading up to the recent corporate scandals. The failure of WI states to spell out minimum terms of reference for an audit committee has meant that, WI companies have tremendous discretion in determining what their audit committees do and disclose. Further, if the situation presented in the annual reports examined are taken as representative of the true state of affairs it suggests that they may not have exercised this discretion in the best interest of stakeholders. It indicates that the WI business environment may be more risky than that of the USA and other states that have implemented the IBP guidelines. The low level of disclosures provided by, required of, WI firms in almost all areas of AC make it almost impossible for external stakeholders to adequately assess their independence, competence, the full extent of the purpose served by AC or their procedures, resource endowment and hence effectiveness. It increases the probability that many WI ACs may be working ineffectively and serving only as window dressing rather than adding to the substance of the accountability/ transparency processes. Also, the failure of WI states to require adequate disclosure of audit committee responsibilities and activities is very troubling in the light of 18

This latter interpretation is supported by the relatively high incidence behaviors such an indiscriminate dumping and traffic violations observed among the general WI population.

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recent international findings that audit committees do not always perform the functions assigned to them in their formal charter (De Zoort, 1997). Unless copies of audit committee charters are publicly available, and unless annual reports clearly describe the activities undertaken by audit committees, the investors will be unable to ask informed questions of audit committees and more generally to hold directors accountable. As a result of this more risky business environment, WI firms may have greater difficulty than their US counterparts attracting capital on favorable terms. For instance, the fact that only 13 of the 43 WI firms studied indicated the number of inside directors on their audit committees makes it difficult for external stakeholders to assess the independence of the AC and its ability to ensure proper oversight of financial matters and to act as an arbiter of disagreements between internal managers and the owners of the firm. This situation was much better among US firms all of which disclosed on this issue and, only two of which had non-independent directors on their audit committees. Another cause for concern is the finding that WI and US companies generally did not consult the audit committee on the appointment or termination of either the head of internal audit or the CFO is another cause for concern. This finding increases the probability that these key players in corporate governance may not have the appropriate level of separation from the CEO to effectively discharge their duties to shareholders. Similarly, the fact that only thirteen (eight) WI firms reported the number of AC members that were financially literate (experts) retards our ability to assess the competence of the audit committees. Of equal concern is the finding that not all members of the audit committees of the thirteen firms providing financial literacy disclosures were in fact financially literate. This finding suggests that the competence of WI AC members may not be par with IBP or that of their US counterparts. It is also difficult to assess the independence of the external auditors of WI firms (i.e., the potential for non-audit relationships to influence auditor independence) as only eight firms disclosed the amount of fees paid to external auditors and none of them disclosed either the total fees paid to auditors or the amount of non-audit fees paid to the external auditors. On the other hand, the finding that audit fees accounted for less than 27 percent of total fees paid to external auditors of US companies causes one to question whether their other significant economic ties with the companies they audit may have impaired their independence. Regulators in both jurisdictions may need to monitor this situation closely. Additionally, the finding that the CEOs of all four WI firms that disclosed whether the CEO was in a position to influence the AC indicated

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that they did (were members of the AC) causes one to question whether those ACs could effectively limit the decision discretion of the CEO. A similar, though less acute, concern was raised for the US firms, 17 of which indicated that the CEO was a member of the AC or nominations committee. This situation contravenes one of the basic tenets of effective corporate governance, separation of the responsibility for decision making and implementation from that of monitoring and ratification for a given problem or opportunity. Furthermore the ability of West Indian stakeholders to assess the capacity of the AC to effectively discharge its responsibility was inhibited because none of the firms in the WI disclosed whether the AC had a budget for, or access to, independent expert advice. The situation was only slightly better among US firms. Only three and four US firms disclosed whether the AC had a budget for procuring independent expertise and had access to independent expertise, respectively. Finally, the fact that none of the twenty-three West Indian companies that did not disclose the existence of an AC indicated whether the full board had assumed responsibility for the duties usually assigned to the audit committee is disconcerting. It hinders users’ assessment of whether, and how effectively, those functions are being discharged in these companies. Two of the primary conclusions of this study are as follows. Firstly, the adoption of AC best practices may be dependent on the establishment of specific regulatory requirement and the implementation of an effective compliance monitoring system. Secondly, WI companies are ignoring many of the IBP guidelines for audit committees, probably because they are not legally binding on these companies. As suggested by Walker (2004) this may be due in part to the wariness of directors to voluntarily introduce guidelines that may expose them to claims of negligence. As a result, WI states may need to establish minimum policy, procedural and disclosure requirements for ACs.

Limitations and Implications for Future Research There are two major limitations associated with this study. Firstly, by using only one year’s AC documentation for sample companies the representative ness of the findings may be called into question. To the extent that companies may have deviated from their usual AC practices in the year chosen, then the findings would be anomalous. Fortunately, we have no reason to believe that this was the case.

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Secondly, the fairly low incidence of disclosure by WI companies makes it difficult for one to grasp the true nature of AC practices in the WI. This shortcoming makes it imperative for researchers to undertake survey-based research to gather information on actual audit committee directly from key players in WI companies.

References Abbott, L. J., S. Parker and G. F. Peters (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory 23(1): 69-87. Anderson, C. A. and R. N. Anthony (1986). The new corporate directors. New York: Wiley. Antigua – Barbuda Companies Act (1995). Ascarelli, S. (2003). Corporate reforms through tweaks. The Wall Street Journal. (January, 21): A2. Banz, R. and S. Clough (2002). Globalization reshaping world’s financial markets. Journal of Financial Planning, 15(4): 72-80. Barbados Companies Act (1982). Barbados Securities Industry Act (2001). Berger, S. (1996). Introduction. In National diversity and global capitalism, (Eds., Suzanne Berger and Ronald Dore: Pp: 1 – 25): Cornell University Press, Ithaca, NY. Berle, A. A. and G. C. Means (1932). The Modern Corporation and private property. New York: Macmillan. Bhagat, S. and B. Black (2000). “Board independence and long-term firm performance,” John M. Olin Program in Law and Economics Working Paper No. 188. Stanford Law School. Birkett, B. (1986). “The recent history of corporate audit committees.” The Accounting Historians Journal 13(2): 109-124. Blue Ribbon Committee (BRC) on improving the effectiveness of corporate audit committees (1999). Report and recommendations of the Blue Ribbon Committee on improving the effectiveness of corporate audit committees. Stamford, CT. Cadbury (1992). Report of the committee on the financial aspects of corporate governance. Gee Publishing. Daily, C. M. and D. R. Dalton (1994). Bankruptcy and corporate governance: The impact of board composition and structure. Academy of Management Journal, 37(6): 1603-1617. Davis, J. H. and D. F. Schoorman (1997). Towards a stewardship theory of management. Academy of Management Review, 22(1): 20-47.

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De Zoort, F. T. (1997). An investigation of audit committees’ oversight responsibilities. ABACUS, 33(3): 208-227. —. An analysis of experience effects on audit committee members’ oversight judgments. Accounting, Organizations and Society 23(1): 121. Drezner, D. W. (2001). Globalization and policy convergence. International Studies Review. 3(1): 53-78. Eastern Caribbean Securities Act (2001). Fama, E. F. and M. C. Jensen (1983). Separation of ownership and control. Journal of Law and Economics, 26(June): 301-325. Felo, A. J., D. P. Mahoney and S. A. Solieri (2002). New accountability for corporate audit committees. Strategic Finance (May): 52-56. Friesen, G. Bruce (2003). Globalization it’s just another state of mind. Consulting to Management, 14(2): 19-22 Goddard, A. R. and C. Masters (2000). Audit committees, Cadbury code and audit fees: An empirical analysis of UK companies. Managerial Auditing Journal 15(7): 358-371. Grenada Companies Act (1994). Hambrick, D. C. and R. A. D’Aveni (1992). Top team deterioration as part of the downward spiral of large corporate bankruptcies. Management Science, 38: 1445-1466. Hellman, E. and M. Sykuta (2003). Who’s monitoring the monitor? Do outside directors protect shareholders’ interests? Contracting and Organizations Research Institute, Working paper No. 2003-02. Higgott, R. A. (1999). Globalization: The benefits and the threats. Lecture delivered at the Second ASEF University Summer School. Peking University, China. Higgs Report (2003). Review of the role and effectiveness of non-executive directors (The Higgs Report). Report of the Secretary of State for Trade and Industry and the Chancellor of the Exchequer. IFAC (2003). Rebuilding public confidence in financial reporting: An international perspective. International Federation of Accountants. New York, NY. Intriligator, M. D. (2003). Globalization of the world economy: Potential benefits and costs and a net assessment. http://www.toda.org/grad/intriligator.html [accessed July 25, 2003]. Jensen, M. C. and W. H. Meckling (1976). Theory of the firm: Managerial behavior, agency costs, and ownership structure. Journal of Financial Economics, 3(4): 305-360. Kester, W. C. (1996). American and Japanese Corporate Governance: Convergence to Best Practice? In National diversity and global

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capitalism, (Eds., Suzanne Berger and Ronald Dore: Pp: 107 – 137): Cornell University Press, Ithaca, NY. Lavelle, L. (2002). Enron: How governance rules failed. Business Week, January 21st. Lawrence, J. A., S. Parker and G. Peters (2004). Audit committee characteristics and restatements. Auditing: A Journal of Practice & Theory. 23(1): 69-87. Luttwak, E. (1999). Turbo-Capitalism. New York: Basic Books. Monk, R.A.G. and Nell Minow (2004). Corporate Governance 3rd ed. Blackwell Publishing, Malden, MA. USA. Nobes, C. (1998). Towards a general model of the reasons for international differences in financial reporting. ABACUS, 34, 162-187. Pfeffer, J. and G. R. Salancik (1978). The external control of organizations: A resource dependency perspective. New York: Harper & Row. Pitt, H. L. (2001). How to prevent future Enrons (Commentary). The Wall Street Journal (December 11): A18. Ruder, D. S. (2002). Oversight hearing on “Accounting and investor protection issues raised by Enron and other public companies.” Senate Committee on Banking, Housing and Urban Affairs. 107th Congress, 2nd Session 12 February. Available at: http://www.senate.gov/banking/02_02hrg/021202/ruder.htm. Securities and Exchange Commission (SEC) (1999a). Audit committee disclosure. Release no. 34-42266; File no. S7-22-99. —. (1999b). NYSE Rulemaking. Release no. 34-42233; File no. SRNYSE-99-39. —. (1999c). NASD Rulemaking. Release no. 34-42232; File no. SRNASD-99-38. —. (1999d). AMEX Rulemaking. Release no. 34-42231; file no. SRAMEX-99-48. Staking K. B. and A. Schulz (1999). Improved financial disclosure as a prerequisite to financial market development. In Financial Disclosure: A first step to financial market development, Eds. K. B, Staking and A. Schulz, Pp. 1-17. Inter-American Development Bank, Washington, DC. St. Lucia Companies Act (1996). Sweeney, P. and C. Waller Vallario (2002). NYSE sets audit committees on new road. Journal of Accountancy (November): 51-59. Trinidad and Tobago Companies Act (1995). Trinidad and Tobago Securities Industry Act (1995).

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Turner, (2001). Audit Committee: A roadmap for establishing accountability. Speech by SEC Chief Accountant to Conference on Corporate Accountability sponsored by the Washington University School of Law and the Institute for Law and Economic Policy, Scottsdale, Arizona. (May 10). Available at: http://www.sec.gov/news/speech/spch469.htm. Walker, R. G. (2004). Gaps in guidelines on audit committees. ABACUS, 40(2): 157-191. Weisbach, M. (1988). Outside directors and CEO turnover. Journal of Financial Economics, 20: 421-460. Williamson, J. G. (1996). Globalization, Convergence and History, Journal of Economic History, 56(2): 278. Wolnizer, P. (1995). Are audit committees red herrings? ABACUS, 31(1): 45-66.

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APPENDIX 1. TABLE 1.1 Audit Committee Regulatory Requirements International Best Practice vs. West Indies vs. USA General AC Guidelines Audit committee (AC) required Minimum AC size Company may seek exemption from requirement to have AC AC required to meet regularly. AC required to devote sufficient time to perform its role effectively Principle based (vs. Rulebased) approach to AC guidelines. Formal AC Charter required AC Charter approved by BOD AC review and assess adequacy of Charter annually AC Charter must specify: Scope of AC’s responsibilities How AC discharges responsibilities (structure, processes, membership requirements)

Int’l Best Practice

TT and Barbados (Also Grenada; St. Lucia)

USA Pre SarbanesOxley

Yes

Yes

Yes

No

3

3

No

Yes

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No (seems to be ad hoc, piece-meal, Increasingly laissez faire) rule-based Extremely so!

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

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APPENDIX 2. TABLE 1.2 Audit Committee Regulatory Requirements International Best Practice vs. West Indies vs. US

AC Responsibilities–External Auditors External Auditor (EA) responsible to Board of Directors (BOD) External Auditor responsible to Audit Committee (AC) BOD and AC authority & responsibility for hiring EA BOD and AC authority & responsibility for evaluating EA BOD and AC authority & responsibility for replacing EA AC responsible for ensuring that EA periodically submits to the AC a formal written statement of all relationships with the company AC to recommend audit fee to BOD AC required to approve non audit services provided by the EA AC to approve appointment of EA key individuals to company after cooling-off period AC required to conduct a regular comprehensive review of the total audit relationship, including both costs and quality aspects AC responsible for assessing the impact of EA–Company relationships that may impair objectivity and independence and recommending appropriate action(s) to BOD

Int’l Best Practice

TT and Barbados (Also Grenada; St. Lucia)

USA Pre SarbanesOxley

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Audit Committees and Globalization

AC responsible for approving nonaudit services provided by the External Auditors AC responsible for approving the appointment of key external auditor personnel to positions in firm (as employees) AC Responsibilities – Internal Auditors AC approves terms of reference/charter of internal audit AC consulted on appointment of Head of internal audit AC consulted on termination of Head of internal audit AC responsible for regularly assessing the appropriateness of resources being devoted to the adequacy and effectiveness of internal controls AC Responsibilities – Financial Statements Review the financial statements of the company before they are approved by the BOD AC report regularly to the full BOD

259

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

No

Yes

Yes

Yes

Yes

Yes

Reports (regularly?)

Yes

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APPENDIX 3: TABLE 1.3 Audit Committee Regulatory Requirements International Best Practice vs. West Indies vs. US AC Composition

All AC members must be independent Majority of AC members must be independent Independence clearly defined Definition of independence left to the discretion of the BOD AC Competencies All AC members must be financially literate Financial literacy clearly defined Definition of financial literacy left to the discretion of the BOD All AC members must be financial experts Majority of AC members must be financial experts At least one audit committee member must be a financial expert Financial expert clearly defined Definition of financial expertise left to the discretion of the BOD

Int’l Best Practice

TT and Barbados (Also Grenada; St. Lucia)

USA Pre SarbanesOxley

Yes

No

Yes

General threats specified

Yes (may be related to small size of states) Yes (very narrow definition) **

Yes

No

No

Yes

No

Yes

No

No

Yes

Yes

No

No

No

No

No

No, but preferred

No

No

Yes

No

Yes

No

No

Yes

Yes

Silent on competence

Residual/ Yes

No

No

Yes

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APPENDIX 4: TABLE 1.4 Audit Committee Regulatory Requirements International Best Practice vs. West Indies vs. US

AC Disclosure

TT and Int’l Barbados USA Pre Best (Also SarbanesPractice Grenada; Oxley St. Lucia)

BOD to provide annual written affirmation of AC existence, functioning, composition and Yes expertise, independence of directors adequacy of AC charter, literacy of AC, presence of expert on AC AC responsible for disclosing its approval of the employment by the company of individuals who place a Yes key role on the firm’s audit (in the recent past) Are firms required to disclose non Yes audit fees Company to disclose detailed Yes background of all AC members to assist in assessment of competence Company required to disclosure non Yes compliance with best practice Company required to disclose non Yes audit fees to shareholders AC Procedures AC must hold regular private meetings Yes with EA without management AC must hold regular private meetings Yes with Head of internal audit without management AC must hold regular private meetings Yes with CFO without management Frequency of meetings with External At least Auditors once per quarter

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

No

Yes

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BOD required to devote adequate time to discuss report of AC CEO and CFO required to prepare a statement to be filed with quarterly and annual financial statements certifying the “appropriateness of the financial statements and disclosures contained in the report, and that those disclosures and financial statements fairly present, in all material respects the operations and financial condition” of the company (USA) AC Resources AC must have access to advice/expertise to facilitate its role AC receive regular reports from management and the auditors covering areas of concern or disputes

Yes

No

Yes

Yes

No (general requirement for directors to sign financial reports)

Yes

Yes

No

Yes

Yes

No

Yes

CONTRIBUTORS

Roland G. Baptiste is a Senior Lecturer in the Department of Management Studies, The University of the West Indies, St. Augustine Campus. His research interest is the area of organizational change. He has published on the Transformation of the Postal Services of Trinidad and Tobago and on the merger of two major banks. A former senior public servant, he has written on public service reform. He teaches Human Resource Management, Human Resource Development, Organization Development, and Organizational Behaviour. Ann Marie Bissessar is a senior lecturer with the Department of Behavioural Sciences, The University of the West Indies, St Augustine Campus, Trinidad, West Indies. She is the author, co/editor of approximately 9 books and a number of articles in well known journals. Her research interest is the area of public sector/governance reforms, affirmative action and public policy. Anthony Bowrin is lecturer in Accounting with the Department of Management Studies, University of the West Indies, St Augustine and Executive Director of the UWI School of Business and Applied Studies Limited. He currently serves as director of the following organizations: the UWI Credit Union Cooperative Society, Cable News Channel 3, Trinidad Broadcasting Company Limited, and Caribbean Court of Justice Trust Fund. He holds a PhD in Business Administration (Auditing Specialization) from Southern Illinois University. He also holds the Certified Management Accountant and Certified Financial Manager professional designations and is a member of the Institute of Chartered Accountants of Trinidad and Tobago and the Institute of Management Accountants, USA. Siglien, Ria Burleson is currently a lecturer and Dean of the Faculty of Social Sciences, Anton de Kom University Van Suriname. She was employed previously with the Ministry of Foreign Affairs and the Central Bank of Suriname. She also served/ is presently serving on a number of Committees including The State Commission on revision of the Suriname Private Legislation, Foundation for Intellectual Property Rights in

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Suriname, and the Suriname Business Forum. Her research interests include international trade relations, company law and legal origins and corporate governance. Gerald Caiden, PhD., has research and teaching interests in several areas of public administration, notably comparative and development administration, administrative theory, and the study of maladministration and bureaupathology. He is responsible for over 29 books and over 270 academic articles on diverse topics, such as administrative corruption, public accountability, auditing, ombudsman, public service ethics, comparative administrative cultures, and public management systems. He is best known for his pioneering studies in administrative reform, organizational diagnosis, ombudsman, comparative corruption, and public sector innovations. Among his more recent books are Administrative Ethics (Fudan University Press, 2003), Administrative Reform Comes of Age (Walter de Gruyter, Berlin 1991), A Dragon's Progress: Readings in Korean Development Administration (Kumarian Press, 1991), Development: A Reader (Human Resources Institute 1988), The Economics and Politics of Organized Crime (Lexington Books, 1984), A Select Bibliography of American Public Administration (Garland Press, 1983), An International Handbook of Ombudsman (Greenwood Press, 1983), Public Administration (Palisades Press, 1982), and Strategies for Administrative Reform (Lexington Books, 1982). He was editor of The International Journal of Technical Cooperation (London, 1995-1999). He is currently a member of the U.N. Panel of Experts in Public Administration and Development since 1994. He won the USC Mellon Foundation Award for Excellence in Mentoring for the 2005-2006 academic year. Naoimi Caiden is a professor in the Department of Political Science at California State University, Los Angeles, where she teaches public budgeting and public administration. She is the coauthor (with Aaron Wildavsky) of Planning and Budgeting in Poor Countries (Transaction Books, 1980) and a past editor of Public Budgeting and Finance. Thalia Anthea Choy is a graduate of the University of Guyana and teaches foundation and third year courses in public management within the Department of Government and International Affairs. She received a scholarship sponsored by CIDA to study at Dalhousie University where she read for a Masters of Marine Management. There she contributed to a publication titled “Invasive Species in North America: Impacts, Pathways

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and Management” which was published in the Ocean Yearbook in Summer 2006. She has also been part of a consultancy team making recommendations for building local government capacity and improving political participation among women. Tom Christensen is Professor of Public Administration and Organization Theory at the Department of Political Science, University of Oslo, Norway. His main research interest is in the field of comparative public sector reform and his theoretical basis is organizational theory. He has published intensively over the years in a wide variety of international journals. Among his latest books could be mentioned: New Public Management: The Transformation of Ideas and Practice (edited with Per Laegrid–Ashgate 2001); Autonomy and Regulation: Coping with Agencies in the Modern State (edited with Per Laegrid-Elgar 2006); Transcending New Public Management (edited with Per Laegrid–Ashgate 2007) and Organization Theory for the Public Sector (with Per Laegrid, P Roness and K A Rovik-Routledge 2007). Donald Gribbin is Professor of Accounting, Western Michigan University, where he currently teaches cost and managerial accounting courses. Prior to joining Western Michigan University in 2006 he taught at Southern Illinois University-Carbondale for seventeen years. He received a Ph.D. in Business Administration from Oklahoma State University. He has published articles in the Journal of Managerial Accounting Research, Decision Sciences, Journal of Business Finance & Accounting, the British Accounting Review, and the Quarterly Journal of Business and Economics. Dr. Gribbin is also a Certified Public Accountant. Per Lægreid is Professor of Administration and Organization Theory, University of Bergen, Norway. He has published extensively on public sector reform and institutional change in a comparative perspective. His latest publications include articles in Governance, Public Administration, Journal of Management Studies, Public Performance & Management Review, Financial Accountability and Management, International Public Management Journal and International Review of Administrative Sciences. His recent books are Transcending New Public Management. The Transformation of Public Sector Reforms (Ashgate 2007) and Autoromy and Regulation. Coping with Agencies in the Modern State (Edward Elgar 2006), both edited with Tom Christensen.

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Philip Osei is a Senior Associate with DPM International and a Lecturer in public policy and governance. He has over 15 years lecturing and consulting experience. Some of his specialist areas are Public Sector Reform and Management; Institutional Strengthening; Analysing and Managing Policy Change; Management Development for Public Services; Regulatory Institutions; Good Governance; Decentralized; Management of Development; and Poverty Reduction Policy. He has undertaken consultant assignments in Jamaica; the United Kingdom; and countries in the Caribbean, Central America and Africa. Dr. Osei has a wealth of knowledge and experience in public policy and governance and continuously contributes both to development practice and academia through various published and unpublished written work. Dr. Osei is from Ghana and currently lives in Jamaica. Albertina Salina (LLB University of London, Inn of Middle Temple; Masters degree in Telecommunications Regulations and Policy , UWI) is an attorney at law with over 19 years experience in both public and private sector practice in Trinidad and Tobago. Over the last ten years Ms Salina has functioned as legal advisor to various Government Ministries in Trinidad and Tobago in the specialist area of consumer protection, ecommerce and ICT law. In that capacity she has done extensive work reviewing existing policies and laws with the goal of creating appropriate policy and legal frameworks in order to address policy concerns in the relevant areas. During the period 2004–2006 Ms Salina was a member of the first cohort reading for the Masters degree in Telecommunications Regulation and Policy offered by the University of the West Indies. Michael E Scott is lecturer and Dean in the Faculty of Social Sciences, University of Guyana, Turkeyen Campus, Guyana. He has been engaged over the past 20 years in teaching, research and consultancy in the areas of public policy, social impacts, organizational analysis and global governance. He also serves as a member of several regional and institutional boards and committees. Notable contributions to publications include Institutional Gaps in Poverty Reduction Strategies in Guyana; Public Sector Transformation in Guyana; Globalization, Ethics and Human development; Elections and Unrest in Guyana; and Power, Transnational Terrorism and the Diffusion of Insecurity.

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Steve Stewart worked at the Service Commissions Department and the Ministry of the Public Service in St Vincent and the Grenadines for a number of years. He served formerly as Director (Ag.) of Public Service reform in St Vincent and the Grenadines. He is part time lecturer in Public Sector Management and Organizational Behaviour at the University of the West Indies, School of Continuing Studies in Kingston, St Vincent and the Grenadines.

INDEX

Administrative reform 1, 16, 41, 44, 45, 51, 52, 76, 114 Agency theory 197, 207 Agency contracts 198 CARICOM Corporate Governance Principles 166 Centrelink 27 Cultural institutional perspective 29 Customs Trade Administration (CTA) 86, 87, 92, 93 Commissioner of the CTA (CCTA) 87, 88 Connecting Government Report 25 Constitution Amendment Bill 127 Corporate governance 161, 162m 163,194, 196, 197, 202 Executive agencies 53, 54, 55 Executive Agencies Act 65 European Union’s Open Network Provision Framework Directive 174 General Agreement on Trade in Service (GATS) 174 Governance- 155, 156, 157 Guyana Revenue Authority (GRA) 86, 88, 89, 90, 92, 93, 98 International Monetary Fund (IMF) 14, 42, 75, 89, 162 International Best Practice 196, 208, 209, 210, 211, 212,221 Kaufmann, D. 14

New Public Management (NPM) 22, 23, 24, 32, 35, 60, 86, 95, 96, 97, 119, 127, 131 Negotiation version 28 Public Sector reform 71 Public sector management 71 Public Sector Moderninsation 41, 44, 65 Public-private partnerships 151, 152, 153, 154, 156, 157, 158, 159, 160, 161,163, 167, 169 Privatization 57, 58, 59, 114, 119, 116, 117, 118, 137, 138, 139, 140, 141, 152 Regulated Industries Commission Act of 1998 181 Revenue Authority Act No. 13 of 1996 88, 91 Structural adjustment 42, 57, 115 Simon, Herbert 2 Spann, R.N. 1, 2, Telecommunications Act 2001 172, 175, 176, 187, 188 The Canadian Council for Public Private Partnerships 152 Value-based government 31 Waldo, Dwight 2 Whole of Government (WOG) 22, 23, 24, 25, 26, 27, 28, 29, 31, 32, 33, 34, 35, 36. WTO Basic Telecommunications Service Agreement 172, 174