Political Economy of Bureaucracy

Victor LapuenteESNIE 2009

Outline of the session

• Review cross-fertilization between economic models of bureaucracy + traditional public administration research

• Very superficial: some findings + references

• Main trends in the field defining the scientific frontier

• Invitation to join forces with Public Administration/ Political Science scholars

This is the story of an invasion…

• You (Economists) invaded us (Public Administration-PA, Pol Sci)

• 1980s: Economic Methodological Tools Bureaucracy – “New Economics of Organization”– “Positive Theories of Bureaucracy”– “Political Economy of Bureaucracy”

• Successful conquest of the US (e.g. JPART)

• Résistance in Europe– “American invention”, not suitable for European “very Public”

Administrations

– Conference key notes: “technical barbarians” (ECPR), “neoliberals, neoimperialists, neocolonialists” (EGPA)

Who are the Political Economists of Bureaucracy?

• Your methodological training defines you

• Deductive, rigorous, parsimonious, testable theories

• Not satisfied with incremental accumulation of knowledge

• Want to make a breakthrough...

Who are thepublic administration scholars?

• Our long experience with the object of study defines us

• Inductive, narrative, storytelling, “bla-bla” theories

• Low degree of generalization of our theories (if any)

• Want to solve daily, mundane problems (e.g. consultants of IO, developing countries, media)

Political Economy of Bureaucracy

• What have we learned from you? – “Scientific revolution” in PA– Adoption of rigorous economics models (e.g. PAT) illuminate

long-lasting problems (e.g. “Weberian asymmetry”)

• Have you also learned from us?– Political Economy has also evolved as a result of studying

Bureaucracy (e.g. the canonical PAT has changed, Miller 2005)

• As a result of these interactions, where are the scientific borders of the field? – There are several relevant trends, that open many windows of

opportunity– Uncertainties > certainties– Data “indicates” > data “demonstrates”

1) From Ex Post to Ex Ante Theories

• Initially, economic theories (e.g. PAT) understand ex post political control of bureaucracy – Traditional view in PA: Congress invest few $ in control of

bureaucracy = bureaucratic independence – For PAT, = bureaucratic control (e.g. fear of sanctions acts as

incentive for bureaucrats)

• Canonical PAT theory: ex post incentives by legislators make bureaus comply – Congress = car lot owner; Bureau = car sales agent

1) From Ex Post to Ex Ante Theories

• “Congressional dominance” literature (e.g. Weingast & Moran 1983, Weingast 1984)– ∆ Legislators ideology ∆ Federal Regulatory Agencies activities– Ultimate proof: high incumbent reelection rates (> 90%)

• Problem of canonical PAT: forget political nature of principals– High costs for political principals of exposing bureaucratic agents’

misbehavior (may be accused of lack of monitoring zeal by the electorate)

– Incumbents may increase their reelection chances by not controlling at all

1) From Ex Post to Ex Ante Theories

• Alternative control of bureaucrats: instead of ex post incentives, ex ante administrative procedures

• Pioneers of study of ex ante mechanisms: McCubbins, Noll & Weingast (“McNollgast”) (1987, 1989)– Traditional Law-PA community: Administrative Procedures = normative

concerns of fairness, due process, equity– McNollgast: Administrative Procedures prevent bureaucratic drift– Administrative Procedures Act forces Bureaus to publicize their activities

(transparency, consultation rules) early-warning system for legislators– With detailed Administrative Procedures (even if they increase red tape

and costs for many citizens), legislators “stack the deck” in favor of congressionally favored interest groups.

1) From Ex Post to Ex Ante Theories

• A more political ex ante theory by Moe (1989), Horn (1995): – McNollgast neglected the basics of politics: political uncertainty – Current Enacting Legislative Coalition to protect policies from

future (potentially hostile) majorities – Administrative Procedures (civil service autonomy, decision

procedures, timetables…) “encapsulate” the interests of today’s enacting coalition of a law

– Goal of Administrative Procedures # control bureaucracy, but = that tomorrow’s legislature cannot control the bureaucracy

• ∆ Literature industry of ex ante control

1) From Ex Post to Ex Ante Theories

• Interesting puzzle: burdensome administrative procedures = “lock in” only in systems with separation of powers – Moe and Caldwell (1994): US (APA, “red tape”) > UK– Parliamentary regimes more “efficient” administrative procedures

> Presidential regimes– Does this hold outside the Anglo-Saxon world?

• Not convincing answers for variations in the “level of administrative procedures” or ex ante controls:– Few studies outside the US– Either no clear theory (Braun and Gilardi 2006)– Or problematic empirical analysis (Huber and Shipan 2002)

• Still a lot to know about ex ante mechanisms and administrative procedures…

2) From Dyadic to Complex Theories

• Canonical PAT: one political principal (Congress) one bureaucratic agent (Bureau X)

• Yet bureaus have multiple principals: + Presidents. Moe 1990: political uncertainty & political compromise

Congress (particularistic demands of constituencies) + President (universal demand for efficiency) = bureaucratic nightmare

+ Courts, + Interests Groups...up to 14 principals

• Results on political control more pessimistic (EPA under Reagan)

• Results outside the US? Few studies, but potential (EU, Federal states): Tsebelis (1995, 2002)

3) From Control to Organizational Theories

• Canonical economic approach: – Study of bureaucratic control at the expense of treating

bureaucracies = black boxes– McNollgast et al. : + theory of legislature > theory of bureaucracy

• Problem of observational equivalence: same evidence (e.g. “no sanctions to bureaucrats”)

= bureaucratic independence= bureaucratic control

• Shift goals of research: how politicians control bureaus how politicians design bureaucratic organizations

• Opening the bureaucratic black box

3) From Control to Organizational Theories

• Puzzle: Why do politicians so frequently replace directly accountable political appointees for autonomous bureaucrats? – Interesting for canonical PAT: why the principal renounces to

choose its agent?

• Many answers within the realm of the democratic game:– Horn (1995): exchange Legislators Constituencies– Geddes (1994): exchange Government Party Opposition

• For American States, yes (Ruhil 2003)• Latin America, maybe (Geddes 2000)• For other countries or for Russian provinces, not (Lapuente &

Nistotskaya 2009)– Lewis (2006): exchange President Congress

• But what about autonomous bureaucrats in authoritarian regimes?– Modern Europe: Absolutist France, Prussia, Spain.. + autonomous

civil servants (Corps) > proto-democratic Britain, Sweden, Holland– 1950s: Park Lee’s Korea, Franco’s Spain...

4) From Agent-as-the-problem to Principal-as-the-problem Theories

• Main source of problems:– Canonical PAT studying bureaucracies: Agent (moral hazard,

adverse selection)– Political PAT (Hammond & Miller 1994): Principal (one party and

the third party at the same time) inherent commitment problem)

• The more powerful a ruler is + risk of not honoring the contracts with bankers (who invest $) higher interest rates (North-Weingast literature)

• The more powerful a ruler is + risk of not honoring the contracts with civil servants (who invest human capital) higher interest rates to public employees– Creation of autonomous Administrative Corps for employees

with high relationship-specific investments in human capital (Engineers, state lawyers)

4) From Agent-as-the-problem to Principal-as-the-problem Theories

• Question: which political variables affect the type of administration we have?

• It seems that in the US:

+ Separation of powers (e.g. divided government) autonomous bureaucrats (D.Lewis)

• It seems that outside could be different:

+ Concentration of powers (e.g. autocrats, one-party governments) autonomous bureaucrats

5) From theory-driven to problem-driven studies

• Economic models of bureaucracy: abstract, sophisticated formal theories

• Calvert, McCubbins & Weingast (1989), Lupia & McCubbins (1994), Huber and Shipan (2002)

• “monstrously complicated” (Moe 1997). Propositions:– Trivial (e.g. you choose an agent with similar preferences to you)– Or with so many qualifications and conditions that are difficult to

interpret and to empirically contrast

• Formal theory is useful, but sometimes too disconnected of potential empirical analysis

5) From theory-driven to problem-driven studies

• Political appointees vs. Bureaucrats (autonomously recruited public employees): Who designs/delivers better policies?

• Canonical economists approach:– E.g. Alesina & Tabellini (2007, 2007)– Formalize complex interactions– Not so absolutely path-breaking propositions: e.g. for technical tasks,

bureaucrats better…; for redistributive tasks, politicians better…– Not very clear implications for real-world problems (“New Public

Management” vs. “Neo-Weberians” debate)

• More problem-driven approach:– Krause, Lewis, Douglas (2006)– Let’s look at different combinations of politicians/bureaucrats, controlling for

historical, cultural, socio-economic variables (American states), and see which one works better

– Performance indicator: accuracy of revenue fund forecasts across American states

Not sophisticated model, but realistic bureau (managers and employees)

Equilibrium in trade-off “analytic power” of a theory and “realism”

Predictions are both not-so-intuitive and testable

6) From studying present to the past

• Canonical economic models of bureaucracy: politicians choose bureaucratic institutions in a time void– Yet if something is prone to historical inertias is bureaucracy

• PA scholarship: bureaucracies = result of historical path-dependency– Germany (“guarantor of the public good”), France (“strong state

tradition”)– A given “critical juncture” path dependence

• Wrong?...Probably, but historical differences in bureaucratization explain present-day phenomena:– Closed Civil Service (Belgium, Japan, France) vs. Open Civil Service

(Netherlands, Sweden, UK) +/– New Public Management reforms (OECD)

– Separation of Careers Politicians/Civil Servants (Sweden, Korea, UK) vs. Integration of Careers (France, Japan, Spain) +/- performance-related pay systems for public employees (Dahlstrom & Lapuente 2008)

6) From studying the present to the past

• Small-N studies = “storytellers”, but insightful parsimonious theories + historical legacies

• Shefter (1983): clientelistic/meritocratic bureaucracies– Externally mobilized mass parties (Sweden, Germany)– Internally mobilized mass parties (Italy, US)

• Ertman (1997): patronage/Weberian bureaucracies

• Silberman (1995): two types of Weberian bureaucracies– Unpredictable Political Elite (19th century France, Spain, Japan)

organizationally oriented bureaucracies (lifetime functionaries, isolated from civil society)

– Predictable (US, UK) professional bureaucracies (closer to private sector contracts, connected to their professional peers in civil society)

• Implications for Political Economy of Bureaucracy: – Build formal models inferences to other settings– Rethink existing models (e.g. different types of Weberian bureaucracies)

7. From the America to the rest of the World

• Political Economy of Bureaucracy: mostly the US (mostly federal agencies)– Many cross-state and cross-local variations to explore– The rest of the world: lots of APAs, types of bureaucratic

organization, performance comparisons between political appointees and bureaucrats, etc…

• Data shortcomings?... Not an excuse anymore

– Data on de jure and de facto bureaucratic institutions is there (national legislations, aggregate indicators in OECD and EU, subjective perceptions WB, ICRG…)

– Gather your own data (e.g. experts-survey on de facto)

Quality of Government Institute

Dahlström, Lapuente & Teorell (2009)

• Consensus on the importance of non-corrupt government institutions, but not its causes

• Two types of institutionalist explanations of corruption: – Political institutions: majority, and Political Economy– Bureaucratic institutions: minority, and informal PA (Neo-Weberian)

• The two types have not been tested together

• So, what matters: Politics or Bureaucracy?

Goals of the research

• Test political (input) and bureaucratic (output) type of explanations: – Quantitative: country-expert survey (526 scholars, 58 countries),

cross-country corruption indicators – Qualitative: case-study analysis of administrative reforms (late

19th century)

• Which bureaucratic feature is relevant for reducing corruption. Neo-Weberian PA points out many:– How we recruit public employees? e.g. meritocratic/political,

competitive exams/non-structured exams)– Promotion system? – Career stability? Secure tenure? Internal promotions?– Particular labor laws for bureaucrats? – Competitive salaries in comparison with private sector?

Political explanations: the apartment upstairs

• Type of political regime (e.g. Keefer 2007)

• Type of political elite: women (e.g. Treisman 2000)

• Number of veto players (Andrews & Montinola 2004)

• Electoral system (Persson, Tabellini & Trebbi 2003)

Changes in the Apartment Upstairs and Corruption Quantitative Literature

(e.g. Montinola & Jackman 2002, Keefer and Vlaicu 2007, Keefer 2007, Bäck & Hadenius 2008...)

0

10

20

30

40

50

60

70

80

90

Autocracies Young Middle Consolidated

Age of Democracy

Qu

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f G

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Changes in the Apartment Upstairs and CorruptionQualitative Literature

“Contradictory relationship” between democracy and corruption

Corruption frequently increases (and QoG decreases) after moves towards democracy:

Developing countries after decolonization (e.g. Lemarchand 1972 on Africa, Scott 1972 on Southeast Asia, Wade 1985 on India, or Sayari 1977 on Turkey)

Post-communist countries after 1990 (e.g. Varese 1997 on Rusia),

Latin American countries after different waves of democratization (e.g. Weyland 1998)

Not in all transitions (e.g. Chile, Spain)

Bureaucratic explanations: state apparatus

• Weberian bureaucracy matters for many – Weberian Bureaucracy # dinosaur (Olsen 2005)

• Not clear which particular bureaucratic features matter and through which theoretical mechanisms:– More competent employees to start with– Esprit de Corps– Salaries– Internal checks and balances (Miller and Falaschetti 2001)

• Few empirical analysis (Rauch & Evans 2000): developing countries

Looking at the data, two dimensions of Weberianism emerge

Professionalism(Open Civil Service)

Closedness(Closed Civil Service)

Meritocratic recruitment (q2_a)   .90 –.04

Political recruitment (q2_b) –.94   .08

Political elite recruits senior officials (q2_d) –.82 –.15

Senior officials internally recruited (q2_e)   .81   .28

Formal examination system (q2_c) .07   .80

Lifelong careers (q2_f)   .34   .80

Special employment laws (q8_f) –.25   .73

Competitive salaries (q2_k)   .18 –.49

(1) (2) (3) (4) (5) Professionalism –0.32*** –0.24*** –0.23*** –0.26*** –0.20*** (0.08) (0.07) (0.07) (0.08) (0.07) Log(GDP/cap) –0.95*** –0.61*** –0.29 –0.62** –0.27** (0.10) (0.11) (0.17) (0.24) (0.11) Level of democracy 0.08** (Freedom House) (0.04) Years of democracy –0.00* –0.00* –0.00 –0.00 (0.00) (0.00) (0.00) (0.00) Political constraints –0.85** –0.28 (0.39) (0.37) Protestantism –0.01*** –0.01*** –0.01*** (0.00) (0.00) (0.00) Freedom of the press 0.02** 0.02*** (0.01) (0.01) Female representation –0.02*** –0.00 (0.01) (0.01) Constant 8.47*** 5.90*** 1.98 5.21** 1.94 (0.91) (0.93) (1.82) (2.05) (1.22) No. of countries 50 47 43 38 47 Adjusted R-squared 0.845 0.916 0.938 0.888 0.956

(1) (2) (3) (4) (5) Professionalism –0.18** –0.10 (0.07) (0.06) Closedness 0.05 (0.05) Competitive salaries –0.03 (0.04) Meritocratic recruitm. –0.20** –0.20*** –0.15*** (0.08) (0.06) (0.05) Politicized recruitment 0.00 (0.06) Internal promotion –0.01 (0.06) Formal examinations 0.02 (0.04) Lifelong careers 0.00 (0.06) Special employment laws 0.03 (0.06) Corruption in 1996 0.31*** 0.30*** (0.08) (0.07) Constant 2.14* 2.40** 2.03* 0.42 1.18 (1.22) (1.06) (1.11) (0.85) (0.83) Observations 47 47 47 47 47 Adjusted R-squared 0.956 0.959 0.959 0.968 0.973

Greece

Kyrgyzstan

Macedonia

Portugal

Slovenia

MexicoDenmarkRussian Federation

Hungary

France

Norway

Slovakia

JapanGeorgia

GermanyFinland

Belgium

Sweden

SwitzerlandArmenia

India

Poland

South Africa

Bulgaria

MaltaBelarus

Azerbaijan

Canada

Netherlands

Czech Republic

United StatesRomania

KazakhstanKorea, South

United Kingdom

Latvia

Spain

New Zealand

Brazil

Croatia

Australia

Estonia

Ireland

Uzbekistan

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-1 -.5 0 .5 1Merittocratic recruitment, conditional on controls

coef = -.1333341, se = .0484395, t = -2.75

Many unanswered relevant questions

• Is how we recruit public employees more important than how we recruit rulers for reducing corruption?– Policy implications: $ for building state capacity (still) sent to

build democratic institutions

• Under which conditions autonomous bureaucrats are somewhat better than political appointees for the same task?– Policy implications: New Public Management reforms vs. Neo-

Weberian

• Which are the causes and consequences of the different types of Weberian bureaucracy?– Policy implications: Closed Civil Service vs. Open Civil Service

The Political Economy of

Bureaucracy needs you !!

Political factors Bureaucratic Autonomy

• Lapuente (2007): autonomous bureaucracies as result of two different interests of rulers:

• Efficient policy provision: + concentration of powers (e.g. Absolutist ruler) + credible commitment problems autonomous civil service as second-best solution (e.g. Corps)

• Loyalty of public employees: - concentration of powers (e.g. multiple veto players) + problems to control public employees autonomous civil service as second-best solution (e.g. late 19th

century Japan, Spain)

Further Readings

• Bendor, Jonathan, Ami Glazer, and Thomas Hammond. 2001. “Theories of Delegation”. Annual Review of Political Science, 4: 235-269.

• Horn, Murray J. 1995. The Political Economy Of Public Administration: Institutional Choice In The Public Sector, New York: Cambridge University Press

• Moe, Terry M. 1997. “The Positive Theory of Public Bureaucracy”. In Dennis Mueller (ed.), Perspectives on public choice: a handbook. Cambridge, MA: Cambridge University Press.

The data

• Original dataset, based on an expert survey, launched by The Quality of Government Institute, University of Gothenburg.

• Ongoing survey, started in September 2009.

• In March 12, we have a total of 526 expert responses on 58 countries, with a variance between 1 and 28 responses per country.

• In this paper we relied on the 52 countries with at least 3 expert responses.

Number of Valid Responses by Country

Country Respondents Country Respondents Albania 11 South Korea 7 Armenia 16 Kyrgyzstan 6 Australia 10 Latvia 7 Austria 5 Lithuania 11 Azerbaijan 6 Luxembourg 1 Belarus 9 Macedonia 7 Belgium 7 Malta 3 Bosnia & Herzegovina 7 Mauritius 1 Brazil 3 Mexico 11 Bulgaria 22 Netherlands 14 Canada 13 New Zealand 12 China 1 Nigeria 2 Croatia 6 Norway 12 Cyprus 1 Poland 11 Czech Republic 28 Portugal 9 Denmark 13 Romania 17 Estonia 10 Russian Federation 6 Finland 11 Serbia 2 France 6 Slovakia 7 Georgia 8 Slovenia 11 Germany 12 South Africa 3 Greece 22 Spain 7 Hungary 15 Sweden 11 Iceland 4 Switzerland 5 India 7 Turkey 5 Ireland 16 Ukraine 11 Italy 7 United Kingdom 11 Japan 9 United States 19 Kazakhstan 7 Uzbekistan 3 TOTAL 526

Note: Countries in italics are not included in this paper due to too low response rate.

Number of Valid Responses by Country

Causal Mechanisms Observable Bureaucratic Features

1. CompetenceThe key is to “select better types”

1a. Meritocratic recruitment (candidates are “screened” according to their merit)1b. Competitive Formal Examinations (candidates “signal” their merit)

2. Esprit de CorpsThe key is to “create better types” through socialization in certain values, strong ties among the members of the Corps and isolation from external influences

2a. Career stability / Secure tenure.2b. Internal promotions (in opposition to lateral entries).2c. Special laws for public employment (in opposition to standard labor laws).

3. CooptationThe principals of the administration are selected among the agents

3. Internal promotions (in opposition to lateral entries).

4. TemptationThe key is to pay bureaucrats enough, so as they do not engage in corrupt behavior to complement their salaries

4. Competitive salaries in the public sector.

5. Separation of interests The interests of principals and bureaucratic agents are separated because they are responsive to different chains of accountability

5a. Meritocratic recruitment (candidates are “screened” according to their merit)5b. Non-politicization of public service posts.5c. Internal promotions; no lateral entries

The data

• Original dataset, based on an expert survey, launched by The Quality of Government Institute, University of Gothenburg.

• Ongoing survey, started in September 2009.

• In March 12, we have a total of 526 expert responses on 58 countries, with a variance between 1 and 28 responses per country.

• In this paper we relied on the 52 countries with at least 3 expert responses.

Number of Valid Responses by Country

Country Respondents Country Respondents Albania 11 South Korea 7 Armenia 16 Kyrgyzstan 6 Australia 10 Latvia 7 Austria 5 Lithuania 11 Azerbaijan 6 Luxembourg 1 Belarus 9 Macedonia 7 Belgium 7 Malta 3 Bosnia & Herzegovina 7 Mauritius 1 Brazil 3 Mexico 11 Bulgaria 22 Netherlands 14 Canada 13 New Zealand 12 China 1 Nigeria 2 Croatia 6 Norway 12 Cyprus 1 Poland 11 Czech Republic 28 Portugal 9 Denmark 13 Romania 17 Estonia 10 Russian Federation 6 Finland 11 Serbia 2 France 6 Slovakia 7 Georgia 8 Slovenia 11 Germany 12 South Africa 3 Greece 22 Spain 7 Hungary 15 Sweden 11 Iceland 4 Switzerland 5 India 7 Turkey 5 Ireland 16 Ukraine 11 Italy 7 United Kingdom 11 Japan 9 United States 19 Kazakhstan 7 Uzbekistan 3 TOTAL 526

Note: Countries in italics are not included in this paper due to too low response rate.

Number of Valid Responses by Country