Teaching Public Budgeting and Finance as Complex Adaptive System

6th Transatlantic Dialogue Conference

June 24-26, 2010 , Siena, Italy

Dr. Alexander DawoodyMarywood University, USA

Telephone: (570) 348-6284 X2932; Email: adawoody@marywood.edu

“Education is the ability to perceive the hidden connections between phenomena.”

Vaclav Havel

Introduction Public budgeting is a complex phenomenon.

This means that it exhibits complex and chaotic behaviors that cannot be fully uncovered and understood through the traditional linear models.

In observing public budgeting as a complex dynamic our attention shifts from studying it in one direction toward observing it in many directions.

This requires the development of a new model based on a broader understanding of the complex nature of public budgeting as a network of multiple dimensions engaged in a web of interactive associations.

The Linear Model

Attributes

Reductionism and linear progression

Course syllabi, textbooks, grading system, teaching methods, and institutional policies

Prediction, long-term planning/scheduling, and objectivity

The educator as a “wizard”

Steps in teaching budgeting:

1. Defining the logic of the budgetary process

2. Identifying the financial structures

3. Observing the financial methods and practices

4. Reviewing budget classifications and reforms

5. CBA

6. Taxation

1.

The Logic of the Budgetary Process

2.

Finance Structure

3.

Finance Methods and Practices

5.

BudgetClassific-ation and Reforms

6.

Cost-Benefit Analysis

7.

Taxation

Figure 1: The Linear Model in Teaching Public Budgeting

N Challenge Area Linear Application Student’s Function Educator’ s Function

1 Control Top-down; One- directional; No room for subjectivity

Force-fed; Subordinate; Limited

Guru, Authoritarian

2 Breaking the Whole into Parts

Breaking public financing into separate and isolated units; Observing each unit individually; Composing the separated units once again while in isolation to understand the whole

Studying each unit within public budgeting separately; Memorizing conceptual elements that explains the separated function of each isolated unit

Teaching each unit in public budgeting mechanically as abstract notion and while in isolation/lab-type setting; Imposing exams, papers and presentations in order to induce piece-study

3 One Best Way Approach One size fits all Applying the abstract concept of a few standardized applications of outdated models to fit all situations

Introducing standardized models inherited through evolutionary process of public policy as the only model for governance and as one-best-way in each application. Emphasis on defusing pluralities of ideas and approaches as sources of confusion and contradictive of instrumental logic.

4 Prediction and Planning Problems, events and issues can be traced and observed through long period of time and plans for resolving or addressing then can be made based on these long-term predictions

Making long-term prediction to issues and problems in public policy and administration; Establishing long-term planning based on long-term predictions to issues and problems in public policy and administration

Teaching students that the world is really linear and events in the world can be mapped according to a line graph that can be traced for a long time; Plans for administrative processes can be accurately based on such a long-term predictions

Table 1: Challenges Inherited from Linearity in Observing Public Financing

5 Clockwise Movement

Time and motion are reversible. A phenomenon is reduced to parts, functions, and building blocks.

Study time and motion linearly and as reversible concepts. Systems do not self-organize but evolve according to a linear trajectory that can be reversed.

Emphasizing the reversible linear progress of time and motion; Change must have logical reasons and understood rationally; No room for random, subjective or self-organizing emergence.

6 Artificial Engineering

If a system decays and unable to respond to environmental changes, it still can be saved through injection of artificial mechanism and resources to prevent its collapse; The longer the system remains alive the better.

Studying system as on-going dynamics capable of resisting internal and external change by modifying itself and continue living even beyond its natural life; Whatever feeding-tubes and resource supplies needed to maintain it alive are logically acceptable measures.

Death is the end, not a phase for renewal. Collapse is horrible and must be avoided; Resources must be allocated to sustain life at all costs, even if the system’s internal structure had lived its natural cycle. Life is linear, not cyclical.

N Challenge Area Linear Application Student’s Function Educator’s Function

N Challenge Area Linear Application Student’s Function Educator’s Function

7 Instrumental-ism Tools are means to achieve the end, and often they become the ends by themselves.

The study of instrumentalism is vital for logical, empirical inquiry. The inquiry is as good as its instruments. Without valid, reliable and sound instruments there is no observation of a phenomenon. At times, searching and creating the means for these instruments becomes the subject of inquiry itself.

Emphasizing one-size-fits all, instrumentalism, and calibration as the logical elements for rational observation. Instruments what separates good policymakers from others; If instruments are not part of the goals in any inquiry, then they ought to be; Without instruments there is no logical or rational way to look at phenomenon; Thus, the instrument becomes the subject of inquiry and takes on life by itself.

8 Rationality/ One-Dimensional

Subjectivity is false; Reason, checked through group and objective observation that is based on deductive logic, linear analysis of separate pieces are the key for scientific observation of a phenomenon; There is no room for plurality of ideas because they create fuzzy, uncertain and confusing elements of thinking and reflecting; Observation must be one-dimensional, directed and linear.

Avoiding subjective views, emphasizing rational thinking and following the dictated one-dimensional approach toward examining public budgeting and its application; No room for the multiple, either in ideas, perspectives or mapping of interplaying dynamics; Everything must fit within a one-dimensional line of progression.

Discouraging public administrators’ subjective views as naive and lacking. Some subjective perspectives are allowed only within the narrow window of one-dimensional linear interpretation of a policy; Emphasis on rationality and rational thinking; Gravity, inertia, control, prediction and planning are all put together as tools (instruments) of logical and rational thinking.

Complexity Solutions

The Complexity Model in Teaching Public Budgeting

and Finance

Developing a better appreciation of the administrative dynamics in public service

Although new, the model can yield comprehensive understanding of a dynamic phenomenon

The focuses is on becoming, intensionality, and constructing reality

No one event is the basic elements or the causal agent in this model.

Each element has the capacity to intersect with another element and produce different outcome

Traditional control methods that always got in the way of learning are abandoned

Teaching is bottom-up through empowering students to become citizens participant-‟observers.

Plurality and diversity of ideas are welcomed

A new state of awareness is encouraged through dynamic participation

Attention is shifted from particular building-block to the overall relationship

Transforming students from passive rational individuals to cognizant-citizens

Figure 2: The Interconnected Dynamic of a Complexity Model in Teaching Public Budgeting

(Source: Cowie, 2004)

Shifting from Control to Influence

Shifting control to influence

The student-agent: Empowering students as autonomous, self-organizing, self-governing agents of the observation process

The educator as a facilitator

Identifying internal patterns of adaptation through networking and engagement in participatory democracy

Interactive syllabi

Shifting grading toward competency and skills development

Interactive literature

Connecting the classroom with its environment

In-The-Moment

Figure 3: Participant/Observer and Pattern of Change in Examining a Phenomenon under Complexity

Networking

Shifting the “breaking of the whole into parts” into an interconnected network

Observing the system in its entirety, connecting both internally and externally

Morphing through phase-shift

Generating unpredictable futures

Continuous structural change through birth and rebirth, equilibrium-disequilibrium-equilibrium

Mutual causality and multiple interconnected forces

The butterfly Effect

Agent-Based Model

Shifting One-Best-Way approaches that emphasize time and motion, managing information and its flow, bureaucratic structures over processes, methods over substance and instrumentalism over human factor

Shifting from rigidity, rationality, top-down, and one-size-fits-all approaches

No single methodology or contrast of polar opposites

It depends

Emphasizing the Agent-Based-Model

Figure 4: Federal, State, Local Governments, and their Environment as Agent-Based Model

Environment Environment

State

Federal

Local

Welcoming Uncertainty

Shifting from prediction and long-term planning toward welcoming uncertainty

We no longer can rely on a naïve confidence that long term results can be accurately predicted

Emphasis on greater flexibility

Prepare structure to respond adaptively to unprecedented changes

Allow a dynamic system the capacity to collapse in order to for the new order to emerge

Instead of prediction, move to anticipation and living in-the-movement

Unorganized structures that seek patterns to adjust with the environment

Uncover what informs our decisions

Trace what action we conceive in a particular moment and how fitting that action is

Tailor emerging patterns to follow the processes of change

Irreversible Time and Motion

No clockwise movements

Irreversible trajectory of time and motion

Change is multi-dimensional, multi-layered, multi-directional, and continually morphing in a state of flux

Simple systems demonstrate complex behaviors which are self-organizing

Autopoiesis and self-referentiality cannot be observed clock-wise

The Imperative of Collapse

Avoid artificial engineering

Allow the system to collapse naturally

Sustaining the older structures through artificial engineering will not prevent its ultimate collapse, at which point it be accompanied with catastrophe

Changes that take place in the system’s environment act as “kicks” to generate changes within the system’s internal structure based on positive and negative feedback

Emphases are on synergy as the real future, in-the-moment, self-organization, relationships, patterns of similarities and differences, mutual causality, awareness, and transformation through collapse and emergence

Instead of a line, there are loops, networks and webs that are interconnected and interplaying with each other and with their environments

Instrumentalism as Integral Part of Observation

Under linearism, instrumentalism is both the means and the ends

Instrumentalism under complexity is an integral part of the observation process, not despite of it

The validity of instrumentalism holds true as long as it is useful to the observation process itself

The participant/observer must put himself in the process of pattern-forming and transforms during the observation

Welcoming Irrationalism and Pluralism

Under linearism, interpretations are collapsed into one linear approach in sake of rationality and one-dimensional observation

Policies are inherently less responsive, less effective, and less efficient

Any attempt to observe this uncertain world and its irrational policies through “rational” lenses lacks validity in the real world

Observe the “gray” world of uncertainty with flux and multi-dimensional approaches

Table 2: Complexity Resolution to Challenges Inherited from Linearity in Observing Public financing

N Challenge Area Complexity Resolution Resulting Student’s Function Resulting Educator’s Function

1 Control No control; Bottom-up; Empowering subjectivity; Emergence of new learning; Influence

Autonomous; Interconnected; Self-organizing; Identifying patterns

Strange-Attractor; Facilitator; Interactive syllabus; Interactive policies that include administration and citizens’ choice

2 Breaking the Whole into Parts

Studying public budgeting as a dynamic system through the interaction and interconnectedness of its internal elements with their environment; Understanding causality as mutuality of interconnectedness

Observing public financing as a dynamic whole while interacting through its environment; Bridging between personal experiences and the holistic dynamics of public administration as an interconnected system

Introducing financial policy as a functional whole; Identify the policy’s internal dynamics and its interactions with the environment; Explain mutual causality, feedback, and interconnectedness

3 One Best Way Approach Agent-Based-Model; There is no one-best-way; It all depends; Emphasize the importance of process and patterns

Study administrative processes on federal, state and local governments as autonomous and interconnected agents with one another and with their environment

No one-best-way model; Emphasis “it depends” and adopting what works for each situation based on needs, conditions, and the interconnected dynamics both within and outside public administration and policy as a dynamic system

N Challenge Area Complexity Resolution Resulting Student’s Function Resulting Educator’s Function

4 Prediction and Planning No long-term prediction; No long-term planning; The Butterfly-Effect; Anticipation

Understanding systemic behavior as a network; Instead of linear, local causality, learn mutual causality, positive and negative feedback and their impact on the system’s morphology; Be in the momentPrepare for the day and plan only for the very foreseeable future

Emphasize interconnectedness, and the impact of the interplay of internal and external dynamics on changing behavior with a system; Small variations in the initial conditioning can lead to larger changes in the system’s longer trajectory; It is useless to make long-term prediction or plan ahead based on such predictions since small variations within the system’s interconnected networks and trajectory yield unpredictable behavior

5 Clockwise Movement Time and motions are not irreversible; A phenomenon must be observed as a whole within its interactive networks

System self-organize randomly and without planning, control, or prediction; Self-organization has no direction, starting or ending points; Systems exhibit endless and cyclical patterns of phase-shifts, birth, atrophy, decay, collapse, and rebirth. Nothing is static. Life is a continuous state of flux

Emphasize chaos and randomness in system’s structural changes that exhibit movements from equilibrium/disequilibrium/equilibrium; Emphasize flux, fluidity, uncertainty, irreversible time and motion

6 Artificial Engineering Each structure has a life span that is continuous and changing, going through series of birth and rebirth; Renewal is not possible without collapse; Collapse must occur naturally and must not be delayed because of artificial engineering

Changes in the environment provide kicks for systems to change their internal structural order; Older orders must collapse in order for the new to emerge

Older models, systems and practices in public policy and administration must be allowed to collapse naturally in order for the new to emerge and better deal with the complex nature of today’s globalized environment; This includes laws, regulations, administrative procedures, practices and norms

N Challenge Area Complexity Resolution Resulting Student’s Function Resulting Educator’s Function

7 Instrumentalism Tools are only means within a participatory process of observation. They are never the ends

Students are participant-observers, their subjective views count and are validated

Tools are subordinate to subjective observation, not the other way around. It is the observer-participant who is witnessing changes, not the lifeless tool. Tools are only instruments of supportive means. They can be changed, modified or eliminated by the observer

8 Rationality/ One-Dimensional

Dynamic system as a composite of interconnected relationships

Abort Newtonian concepts of accountability, rationality, control, and objective reality. Instead, emphasize on uncertainty, unpredictability, in-the-moment, networks, interconnectedness, change, collapse, birth and rebirth, randomness and subjectivity.

The world of politics and public administration is uncertain and unpredictable; One-dimensional and top-down approaches do not work well in such unclear world; Any attempt to observe this uncertain world and its irrational policies through “rational” lenses will be pure theoretical and lack validity in the real world; Allow for the multiple to flourish; Allow for pluralism of ideas; Let a thousand flowers bloom

The Complexity Themes

Nature of Change

Systems exhibiting variety of continuous, temporal behavior

Nature of change becoming the core of inquiry

Environmental kicks

System’s parameters acting as sensory receptors to capture changes in the environment

Oscillation, chaos, and wild gyrations

Emergent

Multi-dimensional, multiple attractors, irreducible, self-transcending, incommensurable, and following patterns and processes across time and space

Self-organization through phase-shift

Ephemeral or longer transitions

Accepting uncertainty, living-in-the-moment, adaptability, contradictions, and collapse of older structures

Figure 5: Nature of Relationship between System and its Environment

Environment

Morphology Feedback/Stimuli

Environment

Morphology Feedback/Stimuli

System System

Relational Operations

Positive and negative feedback

Morphology

Order-disorder-order

Processes and irrational interactions

Shifting control to influence, predictability to anticipation

Participatory citizens

Non-Locality

Something that occurs in region A can have an effect in region B instantaneously regardless of how far apart these two regions happen to be

Mutual causality

The world of participatory collusion among particles

Structures collapse and evolve because of small reasons that grow larger and become more complex

Interconnectedness

Continuous Flux

A dynamic system is non-static and flux

Flux is continuous

One never steps into the same waters twice

Butterfly effect, living-in-the moment and anticipating change

Figure 6: The Flux Nature of a Dynamic System

Configuration of Public

Administration

Living-in-the-Moment

AnticipationButterfly Effect

Taoism

Complexity as an encompassing perspective building on Western as well as Eastern philosophies, including Taoism.

According to Taoism, contradictory elements in the world are complimentary elements.

All trends eventually reverse themselves

The dynamic interplay of yin and yang

All things are relative and all things matter

No meaning in “you are either with us or against us”

Movements are relationships and interactive patterns

Shifting Objects to Events

No single ontological model

Truth can be seen not as attribute inherent in a system but as the meaning we attribute to that system

moving from part to whole, from structure to process, from objective to epistemic science, and from building block to network

Building blocks and subatomic particles have no meaning if observed as isolated entities

We need to shift our emphasis from object to events, from abstract concepts to real-life situations, and from apathetic citizenship to interactive community process of participant/observers.

Kondratev Cycle

Processes are irreversible

Specific structures cannot be the same

Features within a cycle spill over to the next cycle

These cycles of non-equilibrium, nonlinearity, instability, and structural change is known as the Kondratev Cycles

Public policy as element of evolving complex adaptive of continuous cycles

Removing Theory from Abstract

According to Einstein, the purpose of theory is to make the world stand still when our backs are turned

But, the world always dances around us

Out of chaotic behavior new structures emerge that are sustainable since they are a better fit with the changing conditions in the environment

We need to transform theory from an abstract notion to an engaging and participatory forum

Change citizens to autonomous agents of change within the dynamic of evolving system

Table 3: The Qualitative Dimensions of a Complexity Model in Examining Public financing

N Theme Complexity Dimension1 Nature of Change Dynamic systems exhibit temporal behaviors. Change is uncertain, unpredictable, irrational,

irreducible, emergent, and transcending. Systems exhibit random, internal changes in response to kicks in the environment. System’s parameters with its environment are fused, allowing through feedback for ongoing relationships and networking.

2 Relational Operations Interactions between a dynamic system and its environment are relational based on feedback. Kicks that take place in the system’s environment are stimuli, causing internal disheveling within the system’s structural order and processes. The self-organization process within the system’s internal dynamics is the system’s response to environmental stimuli. These relational operations are irrational, unpredictable, random, and irreducible.

3 Non-Locality Reality has fuzz indeterminacy. Something that occurs in region A can have an effect in region B instantaneously regardless of how far apart these two regions happen to be. It runs against the traditional local causation in traveling the space between building blocks.

4 Continuous Flux The nonlocal way of nature is characterized by a continuous flux. A flux system is a dynamic, non-static system. It is always evolving, always changing, and always responding to stimuli from its environment. During such a system one never steps into the same waters twice since these waters are continually moving.

5 Tao The flow of opposite energies determines the nature of dynamic system. All trends eventually reverse themselves shaped by the dynamic interplay of yin and yang, a metaphor referring to the dark and sunny sides of a hill.

6 Shifting Objects to Events

Truth can now be seen not as an attribute inherent in a system but as the meaning we attribute to that system. This kind of ontological liberation is evident in the paradigm shift from the Newtonian science that includes moving from part to whole, from structure to process, from objective to epistemic science, and from building block to network.

7 Kondratev Cycle Evolution shows movement from non-equilibrium to equilibrium to equilibrium, and so on. This process is irreversible. Because of the irreversibly of structural change, the specific structures would not be the same. Features within a cycle can spill over to the next cycle. These cycles of non-equilibrium, nonlinearity, instability, and structural change is known as the Kondratev Cycles. This understanding makes complex adaptive systems, such as public financing, elements of evolving complex systems.

8 Removing Theory from an Abstract Base

The purpose of theory is to make the world stand still when our backs are turned. Complexity shifts theory to an engaging and participatory forum that will change citizens from observers to citizen participant-observers able to cycle theory through practical observation.

Complexity Solutions in a Nutshell

Becoming, intensionality, and constructing reality

Interconnectedness: No one event is the basic elements or the causal agent

Abandoning control

Subjectivity and networks of expertise

Bottom-up and participant-observant

New state of awareness

Shifting attention from building-blocks to networks, processes and relationships

Citizens as cognizant

Conclusion

Reasons to Choose a Complexity Model

Transparency in operation both within and outside the observation

Operation based on mutual causality and influence

Focusing on the present moment without predictions and planning

Pattern seeking by way of creative disequilibrium and disorganization that enables an ongoing shifting into new structures

Paradoxically preparing for unexpected consequences and uncertain outcomes

Evolving by benefiting from the “butterfly effect”

Self-transcending in the sense of emerging out of the interactions of autonomous agents

We need to shift our focus from control to influence and from prediction to anticipation.

We need to deemphasize prediction, long-term planning and rationality.

Instead, we need to encourage subjectivity, acknowledge the uncertain outcome of deterministic systems, accept the unexpected and random consequences, and engage in processes and pattern observation.

We need to include in patterns what we are observing, what informs our decisions, what action we conceive in a particular moment and how fitting that action is?

We also need to place ourselves in the process of pattern-forming as a tools, focus on synergy as the real future, cycle and recycle a theory, take a side and refrain from remaining neutral, accept contradictions, surprises and puzzles, and embedded in relationships.

This orbital decomposition will enable us be part of self-transcendency constructs, appreciate patterns of similarities and differences across time and space, appreciate hysteresis and delayed response, and better prepare for emergence.

This is the language of the new frontiers.