Changing roles of government Professor Owen Hughes acting Dean Faculty of Business and Economics Mon

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Changing roles of governmentProfessor Owen
Hughesacting DeanFaculty of Business and
EconomicsMonash University, Australia
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The current crisis

• Decline in US house prices
• Sub-prime loans and negative equity
• US market effects
• Bank and other lenders affected
• Heading towards recession
• Stockmarket decline in other places Europe, now
  Asia
• Loss of confidence generally

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The current crisis

• Friday
• Nikkei in Japan fell 9.6 percent
• South Korea stock exchange fell 10.6 percent
• UK, US stock exchange fell about 5 percent

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Decline in GDP
At best, the world economy is on the brink of
recession (The Economist)
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Latest US house price data shows a decline of 6
per cent in past 12 months
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Government called in

• Government called upon for rescue
• Massive funds expended in effort to hold up
  markets
• Rescue package in US, also Europe
• Big spending on infrastructure in Asia
• Where does it go from here?

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Effects on theory

• The role of government in markets
• The balance of markets and government
• How do markets work effectively?
• Instruments of government
• Provision of goods and services
• Regulation
• Production
• Assumptions about the superiority of the US model
  are now in doubt

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The role of markets

• Perhaps the beginning of a rethink of the proper
  boundaries between public and private sectors
• More and better regulation of finance and banking
  sectors
• Some support for industry

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All government control does not work

• Bureaucracy is efficient for some things but not
  all
• Incentive effects are not present
• System tends to inefficiency as political
  considerations overtake market demands
• There is a balance of markets and government

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All market control does not work either

• No complete market country has ever been seen
• Markets require government to work
• Attempts at minimal government in markets have
  failed
• Laissez-faire in nineteenth century
• Market fundamentalism from 1980s

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Categories of government intervention

• laissez-faire, with minimal intervention
• frequent, uncoordinated intervention in a mostly
  free market
• systematic state guidance of private
  decision-making
• thorough state management and decision-making for
  the whole economy. (McCraw)

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Market failure and roles for government

• Markets do not work well when there are market
  failures
• Public goods
• Merit goods
• Externalities
• Natural monopoly
• Imperfect information
• Government can also fail

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What kind of public management?

• Government doing everything
• Managing largely through regulation
• Leaving the things that governments do not do
  well to markets
• Using government to enhance the performance of
  markets
• Market-based management and government-facilitated
  markets

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New public management

• The traditional model of administration
• Many nations of the world, developed or
  developing, began a period of sustained public
  sector management reform in the late 1980s or
  early 1990s.
• This movement is still continuing to have its
  impact on how governments are organised and
  managed.

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Key features of public management

• The achievement of results and the personal
  responsibility of managers.
• To move away from classic bureaucracy to make
  organisations, personnel, and employment terms
  and conditions more flexible.
• Organisational and personal objectives are to be
  set clearly, measurement of their achievement
  through performance indicators.

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Pragmatic public management

• Less ideological
• A new pragmatism whatever works
• Much more sophisticated use of statistics,
  economic models etc
• Who now speaks of public administration within
  government?

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A black cat or a white cat

• A US Federal Reserve executive quoted Deng
  Xiaoping
• No matter if it is a white cat or a black cat,
  as long as it can catch mice, it is a good cat
• Deng meant China needed to abandon some socialist
  orthodoxy that stood in the way of prosperity
• A need for balance between government and markets

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Barack Obama

• Government cannot solve all our problems but what
  it should do is that which we cannot do
  ourselves protect us from harm and provide every
  child a decent education keep our water clean
  and our toys safe invest in new schools and new
  roads and new science and technology

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A new balance

• Balance is needed between government and markets,
  each needs the other
• Governments are good at some things and not good
  at others
• Markets are good at some things and not others
• The task for public managers