How coordination and control of public organizations by government interrelate: an analytical and empirical exploration

Verhoest Koen, Peters Guy, Beuselinck Eva, Meyers Falke and Bouckaert Geert

Governments use to an increasing extent new mechanisms of coordination to coordinate the activities of the autonomous public organizations. Market-type mechanisms (MTM) and network-type mechanisms (NTM) become more prominent, replacing or complementing hierarchy-type mechanisms (HTM). However, the use of a specific coordination mechanism by government to coordinate the activities of its public organizations (and others bodies) goes together with the use of specific forms of control of single public organizations in order to perform well. From that perspective, a government that coordinates public organizations through NTMs or MTMs may be assumed to reduce control over the involved public organizations through ex ante mechanisms, through structural means (like links between minister, CEO and board) or through financial means. Instead the government will control these organisations by means of ex post result oriented control mechanisms. However, when testing these assumptions with data from a survey from Flemish public organizations, these assumptions do not seem to hold. The Flemish government does not make any difference in the way it controls the public organizations for public organizations coordinated by NTM or MTM and public organizations not coordinated by such mechanisms, or that it uses coordination mechanisms independently of the way it controls the involved agencies. This could be explained by the nature of markets or networks that the Flemish public organizations are involved in. More fundamentally, government coordination and control of public organizations maybe should be considered as being not (purely) driven by economic rationality, but also by political rationality. Or it should be even considered as being irrational, leading to ‘vestigial’ control and coordination mechanisms existing alongside new mechanisms.

For the last 25 years, the public sector of many OECD-countries has been subjected to agencification, in an attempt to create a better performing public sector. These reform processes were characterised by tendencies of specialisation and the granting of autonomy, combined with increased internal and external pressure. To a certain extent, these tendencies of specialisation at the organizational and policy level seem to have enhanced the efficiency and effectiveness of the public sector, but at the same time, they resulted in a number of unforeseen negative consequences - due to a proliferation of services and public organizations - for which a remedy has had to be sought. In this changing environment, coordination is seen as a pivotal mechanism to preserve and foster policy coherence and to enhance the (central) authorities’ steering capacity. Governments used to an increasing extent new mechanisms of coordination to coordinate the activities of the autonomous public organizations. Market-type mechanisms (MTM) and network-

1

type mechanisms (NTM) became more prominent, replacing or complementing hierarchy-type mechanisms (HTM) (Verhoest and Bouckaert 2005; Legrain and Verhoest 2004). However, it is assumed that the kind of coordination mechanism used is influenced by (and influences in return) the kind of autonomy the single public organizations have and the way they are controlled by the central government. For instance, scholars (Verhoest and Bouckaert 2005) have hypothesized that the increasing use of MTM and NTM to coordinate public organizations’ activities in OECD countries aims at reconciling more policy coherence with the advantages, such as flexibility and result-orientedness, stemming from autonomy and ex post control of public organizations. Moreover, both NTM and MTM need involved public organizations to have some level of autonomy, if these public organizations want to perform flexibly in this market- and network setting and if they want to take full advantages of their environment. On the other hand, public organizations that are strictly controlled by their political principals through hierarchical means, such as requirements for ex ante approval of decisions, strong hierarchical links between government and CEOs, or full financial dependence, will have hard times, operating in market- and network-like environments. In such environments, government will tend to control and scrutinize public organizations more on results ex post. Leaving aside the reciprocal influence of coordination and autonomy of public organizations, the purpose of this paper is to clarify the conceptual links of the coordination between public organizations by government on the one hand and the political control of involved single public organizations on the other hand. After describing coordination and control as two analytical concepts, we explore the potential links between them. Hypotheses on the assumed conceptual links between mechanisms of coordination and forms of control are then confronted with some empirical data, derived from a 2002-2003 survey of public organizations in Flanders (Belgium). Based on the confrontation of theory and empirical data, we try to explain the empirical results and discuss possible refinements of the hypotheses.

1 Coordination and control: some conceptual basics In our conceptual framework we distinguish between three different levels of ‘governance’ practice and research1: (1) Macroscopic research: In a ‘government governance’ context this research is about

the redistribution of tasks between government and the rest of society (private and NGOs), and between different levels of government (structural aspect) and the shifts in mechanisms of guidance, control and evaluation (functional aspect). These two trends result in a multi-actor, multi-level type of system.

(2) Mesoscopic research: this research is focused on how tasks are allocated to and coordinated between a multiplicity of organizations at a particular level of government (local, intermediate, central, European). In OECD-countries, there are

1 One could define more detailed levels of ‘governance’, focusing on task allocation and control within organizations and on individual level (see e.g. Lynn et al.). Of course, the reference to the three levels in this paper as macro-, meso- and micro-level is debatable, but it is used here only in an analytical sense.

2

shifts toward horizontal and vertical specialisation, creating a multitude of ‘autonomous public organizations’ (structural aspect) and shifting mechanisms of coordination (functional aspect), using (re)new(ed) (combinations of) Hierarchy-Type-Mechanisms (HTM), Market-Type-Mechanisms (MTM), and Network-Type-Mechanisms (NTM).

(3) Microscopic research: This research is about a single public sector organization. In practice, the responsibilities and autonomy of single public organizations are redefined (structural aspect) and their way of being controlled, including the mechanisms of accountability are redesigned, mostly from ex ante to ex post, and from input to result based rationales (functional aspect).

Each of these levels has developed in substantial research activity, with rather little cross-over between the different levels of research. Obviously macro, meso and micro levels are interacting in theory, in practice, hence research wise. In this paper we focus on the link between some of the changes on the meso and micro level, conceptually and empirically. Figure 1 maps the different concepts on meso- and micro-level.

Figure 1. The concepts and their relations on meso and micro level

Meso-level of multiple organizations

Micro-level of single organizations

Allocation of tasks and decision making competences

Specialisation of multiple organizations and tasks

• Horizontal specialisation

• Vertical specialisation

Autonomy of a single public organization

• Management autonomy (HRM, financial management)

• Policy autonomy

Aligning the execution of tasks and use of decision making competences to objectives

Coordination of multiple organizations and tasks

• Hierachy-Type Mechanisms

• Network-Type Mechanisms

• Market-Type Mechanisms

Control of a single public organization by the government

• Ex ante input oriented control

• Ex post result oriented control

• Structural control through board and CEO

• Financial control by funding relations

3

1.1 Coordination and related concepts Coordination2 in an interorganizational, public sector context is the alignment of tasks and efforts of multiple units in order to achieve a defined goal. Its aim is to create a greater coherence in policy, and to reduce redundancy, lancunae and contradictions within and between policies (Peters 1998). When taking a governmental perspective, one could distinguish between vertical and horizontal forms of coordination. The government can coordinate ‘vertically’ the activities of its ‘subordinated’ organizations, and ‘subordinated’ is meant here in a wide sense. Therefore, it can use rules, procedures and other hierarchical means. However, between those ‘subordinated’ organizations (, such as public organizations,) and their wider environments, coordination can emerge ‘spontaneously’ without government interference, in the form of collaborative or competitive relationships. So, coordination efforts could originate from a central unit, making other units adjust their activities, or could emerge between units without the intervention of a central unit. However, these horizontal forms of coordination between organizations can be induced, sustained and nurtured purposefully by central government. (Moreover central government can participate itself in horizontal coordination, as being involved itself in networks or acting on a market.) The distinction between hierarchies, markets and networks as three fundamental mechanisms of coordination in social life is widely accepted in the literature3 (Thompson et al. 1991; O'Toole 1997; Kaufmann et al. 1986). Table 1 presents their basic features. Within hierarchical institutional arrangements the central pattern of interaction is authority, operationalized in administrative orders, rules and planning on the one hand and dominance as the basic control system on the other hand. Markets as coordinating institutions are based on competition and exchange between actors. The price mechanism, incentives and the self-interest of actors coordinate the activities of the different actors by creating an ‘invisible hand’. Coordination within networks takes the form of cooperation between actors whose inter-organizational relations are ruled by the acknowledgement of mutual interdependencies, trust and the responsibilities of each actor.

2 In a public sector context, the related concept ‘specialisation’ could be defined as the creation of new public sector organizations with limited objectives and specific tasks, out of traditional core-administrations which have many tasks and different, sometimes conflicting objectives (Pollitt & Bouckaert 2000; Hood & Dunsire 1981). It may emerge in two forms (cf. Heffron 1989): (1) horizontal specialisation as “the splitting of organizations at the same administrative and hierarchical level (…) and assigning tasks and authority to them” (e.g. split of one departement in two); (2) vertical specialisation as the “differentiation of responsibility on hierarchical levels, describing how political and administrative tasks and authority are allocated between forms of affiliation” (Laegreid et al. 2003). The level of vertical specialisation depends upon the extent to which tasks and policy cycle stages are transferred from the core administration to the more peripherical parts of the public sector. 3 Peters (2003) develops a fourth mechanism for coordination, besides hierarchies, markets and networks: collaboration. But as Peters himself states, can collaboration be considered as a more articulated form of networking with a greater willingness of the involved actors to cooperate.

4

Table 1. The features of hierarchies, markets and networks Hierarchy Market Network Base of interaction Authority and dominance Exchange and competition Cooperation and solidarity Purpose Consciously designed and

controlled goals Spontaneously created results

Consciously designed purposes or spontaneously created results

Guidance, control and evaluation

Top down norms and standards, routines, supervision, inspection, intervention

Offer and demand, price mechanism, self-interest, profit and losses as evaluation, courts; invisible hand

Shared values, common problem analyses, consensus, loyalty, reciprocity, trust, informal evaluation - reputation

Role of government Top-down rule-maker and steering, dependent actors are controlled by rules

Creator and guardian of markets; purchaser of goods; actors are independent

Network enabler, network manager and network participant

Theoretical basis Weberian bureaucracy Neo-institutional economics

Network theory

A typology of coordination mechanisms can be based on this distinction between hierarchies, markets and networks as three fundamental mechanisms of coordination in social life (Thompson et al. 1991; Peters 1998): (1) Coordination by Hierarchy-Type-Mechanisms (HTM): HTM refer to a set of

coordination mechanisms which are based on authority and dominance. They involve objective- and rule setting, allocation of tasks and responsibilities and establishing lines of direct control and accountability. Both management instruments (like procedural rules, top-down planning systems or traditional input oriented financial management systems) and structural instruments (e.g. organizational mergers, coordinating function, direct lines of control and accountability) can be used.

(2) Coordination by Network-Type-Mechanisms (NTM): NTM are based on mutual interdependencies and trust. NTM search for the establishment of common knowledge, common values and common strategies between partners. While most cooperative networks grow ‘spontaneously’ between organizations, governments may create, take over and sustain network-like structures between organizations by e.g. the creation of common information systems, concertation structures, collective decision making structures, or even common partnership-organizations. Interorganizational learning instruments like culture management may foster common knowledge and values.

(3) Coordination by Market-Type-Mechanisms (MTM) (OECD 1993): MTM are based on competition and exchange between actors, aiming to create incentives for performance. Although markets establish ‘spontaneous’ coordination among the market participants, governments can ‘purposefully’ create and guard markets (e.g. internal and quasi markets) to foster coordination by competition among organizations.

5

1.2 Control and related concepts Control4 (sensu lato) in this paper refers to the cycle of guidance, control (sensu stricto) and evaluation (Kaufmann et al. 1986), encompassing the mechanisms and instruments used by the government to intentionally influence the decisions and the behavior of a single public organization in order to achieve government objectives. In this paper four forms of control will be distinguished. First, when looking at control of resources and policy of a public organization one can differentiate between timing (ex ante – ex post) and focus (inputs – outputs) of control (see Kaufmann et al. 1986): (1) Ex ante control: emphasis is on the ‘before-the-fact’ formulation of detailed rules,

regulation, standard operating procedures and approval requirements (or nullification rights) that give direction to the actor so that the desired objective (from the viewpoint of the ministers/departments) will be achieved. The intention is ‘to minimize risks and to increase certainty of performance processes before they begin’ (Wirth 1986).

(2) Ex post control: emphasis is on checking whether the intended organizational goals have been achieved by the public organization and whether there is a need for corrective future actions. Elements of ex post control are objective setting, monitoring, evaluation, audit and sanctions.

Both ex ante or ex post control may have their principal focus on the choice and use of inputs, or the delivery of the outputs, although in practice they mostly appear in pairs (ex ante on input; ex post on outputs). However, there are other major means for controlling a public organization, focusing on accountability lines and financial resources5: (3) Structural control by influencing the public organizations’ decisions through

hierarchical and accountability lines towards the public organization head or through the supervisory board;

(4) Financial control by influencing the public organizations’ decisions by changing the level of budget granted to the public organization, the composition of its incomes, and changing the level of risk-turnover;

2 Exploring conceptual links between coordination and control Whereas ‘purposeful’ coordination by government involves multiple public organizations, in this paper ‘control’ as a concept is reserved for the way government

4 Control and autonomy are very closely related and can be seen as the inverse of one another (see Verhoest, Peters et al. 2004, table 3). In this paper we define autonomy as the level of decision making competencies (discretion) of an organization. Control focuses upon the constraints which the ministers/departments can develop to influence the actual use of these decision making competencies in order to influence the decisions made. Making a public organization more autonomous involves shifting decision making competencies from external actors to the public organization itself by delegation, devolution or decentralisation. We distinguish between management autonomy (the choice and use of financial, human and other resources) and policy autonomy (objectives, target groups, policy instruments, quality and quantity of outputs, processes and procedures, issuing of general regulations or decisions in individual cases), each on strategic or operational level. 5 One could define other forms like control through informal contacts and steering signals.

6

influences the decisions of a single public organization. As we will see in this part, of course these two concepts are closely interrelated, but nevertheless can be distinguished analytically. This part explores how the different coordination mechanisms at the level of clusters of public organizations (HTM, NTM and MTM) are linked with concepts of political control (ex ante input oriented, ex post result oriented, structural and financial control) at the level of an individual public organization. The basic assumption in this paper is: the use of a specific coordination mechanism by government to coordinate the activities of its public organizations (and others bodies) goes together with the use of specific forms of control of single public organizations in order to perform well. ‘Performing well’ refers to both the performance of the coordination mechanism in mutually adjusting tasks of different actors, and the performance of the control system in directing the public organization to its core functions. In the literature on markets and networks there is normative reference to the way participating organizations should be controlled in market or network environments, e.g. organizations in competitive market-like environments should have sufficient autonomy in order to be able to respond to competitive threats in a quick and flexible way. Open system theory and contingency theory support - to some extent empirically – such assumptions. Moreover, the idea that organizations which are ill-suited to function in certain environments will exit or extinct in time is central to organizational ecology theories in economics. Bekkers points at the shifting role and capacity of government in both coordinating societal actors and controlling its public organization, moving from a hierarchical superior role to a more enabling role as market or network manager since the seventies onwards. Bekkers see autopoiesis theory and interorganizational network theories as theoretical guidelines for this changing role of government as to coordination and control (Bekkers 1994). First, we deal with the HTM and their link with specific forms of control. From this default position we explore assumptions as to the link of both the NTM and MTM with forms of control and put some of these assumptions to empirical tests. For these tests we use survey data from 84 Flemish6 organizations, belonging to five different types7 (the higher the number, the further away from the core government) (table 2).

6 Flanders is one region in the Federal state of Belgium, with its own parliament and government. Successive state reform projects have distributed powers and responsibilities amongst the Federal state of Belgium and the regions (or communities). The Flemish governmental level thus has its own, constitutionally arranged policy responsibilities. Hence, the Flemish level has developed over time a range of institutions to take up its responsibilities, such as an own parliament, an own government, and an own public sector. Belgium has three regions: Flemish Region, Walloon Region and Brussels Capital Region. Next to that there are also three Communities in Belgium (based on language): Dutch speaking, French speaking and German speaking. The Flemish Parliament and Flemish Government are responsible for the Flemish Region and the Dutch speaking Community. 7 To date, the Flemish public sector can be considered as existing of some concentric circles, with in its core the Departments and Administrations that are hierarchically structured under the responsible ministers (the so called core government). The other circles are at a larger distance from this core, meaning that the organizations that belong to these circles have some levels of autonomy vis-à-vis the political and administrative principals (they are at arm’s length of the core government).

7

Table 2: 5 types of organizations

Type Description 1 Core government organizations that are part of the legal person of the Flemish community, and

that are in the budget of the core department to which they belong 2 Internally autonomous public organizations with an own budget (some managerial discretion), no

legal personality. 3 Internally autonomous public organizations with an own budget (some managerial discretion),

legal personality. 4 Externally autonomous public organizations with an own budget, public law legal personality and

a governing board (indicative for decreased ministerial oversight). 5 Externally autonomous public organizations with an own budget, private law legal personality and

a governing board (indicative for decreased ministerial oversight). The survey belongs to a broader research set up and focused mainly on the level of autonomy and control of public organizations, but included questions as to the environment of the public organizations such as the presence of networks and competitive markets (see….). In that sense data from the survey can be used to put some assumptions to a first test and to refine the hypotheses for further research. Annex 1 gives more details on the sample, the data, the kind of statistical analyses and their outcomes.

2.1 Coordination by hierarchy and forms of control Hierarchy and authority are the most familiar mechanisms used to produce coordination among programs and organizations within the public sector. Hierarchy is a fundamental resource for governments, both externally and in dealing with their own internal management issues. Hierarchy is used in a variety of ways within government. While hierarchy is the conventional means of coping with coordination and most other problems in governing, it is far from a certain means of achieving its ends (see Chisholm, 1989). All governments require some delegation of authority (Huber and Shipan, 2002) in order to be able to govern efficiently, and this delegation in the case of more or less autonomous public organizations is quite extensive. The management difficulty then lies in finding means to balance the rightful autonomy of public organizations with the needs to govern in a more coherent and coordinated manner. At the extreme legislation and other mandates are used to structure patterns of coordination within the public sector. The more typical mode of control within government is for hierarchical superiors in the executive branch of government--prime ministers and their associates, ministries of finance, other control organs such as personnel and budget organizations--to attempt to require that subordinate organizations coordinate their activities in line with the goals of the government of the day. Cabinet itself also operates as a means of collectively deciding goals and ensuring conformity with the goals. At a lower level, ministers can use their own authority to ensure congruence of behaviors within their own departments. In all these instances, political

8

control is imposed over bureaucratic organizations, even though those organizations may have the capacity to govern a particular policy area effectively. As well as the direct application of authority to produce coordination, governments may also develop procedural mechanisms (such as standard-operating procedures SOP) to achieve the same purposes. In some instances these mechanisms may simply require one program informing another of their actions (Davis, 1996). In other instances procedures have been created that attempt to place individual programs into larger strategic assemblies, and create comprehensive approaches to major public problems (see Ministry of Finance, 2001). This list of coordination mechanisms could be extended but the basic point is that authority can be used to make coordination more or less automatic among organizations and programs.

Figure 2. Coordination by HTM and forms of control

central government

agency A agency B

organization C organization D

HierarchyCoordination = control (agency A - N) + control (organization C - N)

direct control (strict ex ante, structural and financial control)

quasi-automatic coordination between agencies and organizations

public sector So, what forms of control by the government of single public organizations would be consistent with the exclusive use of HTM to coordinate these public organizations? Figure 2 presents some key features in a somewhat simplified and extreme way. If a government relies firmly on HTM to coordinate the activities of its public organizations (and other organizations), one can assume that: (1) The government will control the single public organization heavily by using ex ante

controls, like detailed regulations, standard operating procedures and prior approval requirements. Such ex ante controls are obviously most clear-cut for public organizations which still form part of the hierarchy within ministerial departments. But also when public organizations have some degree of autonomy, ex ante controls can still be predominant. In some countries, in order to secure alignment of public agencies’ decisions with general government policy, ministers have the right to veto each decision of the public organizations’ CEO or board before the decision is implemented. In France for instance, the decisions of the boards of ENP’s are screened by the ‘commissaires du gouvernement’ which represent the minister

9

(sometimes the minister of Finance too) in the board, and they can block decisions which do not seem to be consistent with laws, regulations and the general interest. In other countries, human resource management in most public organizations is fairly restricted by elaborated common personnel statutes which are imposed by government and which set out detailed rules and SOP’s on selection, promotion, evaluation and salaries of personnel in order to secure personnel mobility between core administration and public organizations or to keep personnel spending under control. Some countries do consider (and sometimes implement) reintegration of autonomous agencies in the departmental structures, mergers of agencies or strengthening ministerial powers to give instructions to agencies in order to overcome problems of lack of coordination and accountability (cfr. Review of the Centre in New Zealand).

(2) The government will control the single public organization by high levels of

structural control. If government wants public organizations to coordinate their activities in line with the policy of the government of the day, it will make sure that the CEO is hierarchically situated under the minister, so that the minister can direct him and hold him accountable. Traditional units in ministerial departments will have the highest levels of structural control, and are as such easy to coordinate hierarchically by the involved minister/government. But when a government chooses to agentify certain organizations, it can choose between arrangements with high or low level of structural control. In several statements, the current Dutch government expressed their preference for the creation of ‘agentschappen’ (the Dutch equivalent of UK’s Next Steps Public organizations) rather than ‘Zelfstandige Bestuursorganen’ with their own governing board in order to avoid a drift from government policy. When the creation of a public organization with a governing board is – for ever what kind of reason (e.g. interest group power) - necessary, government will assure that government representatives are dominant in the board, when it comes to voting.

(3) Public organizations will be highly dependent of budget allocation from the

government, giving government high levels of financial control8. The traditional input oriented budget process is a major mechanism for coordination of public organizations, in particular when public organizations are dependent upon budget allocation by government.

In a situation where a government relies exclusively on coordination by HTM, activities of public organizations are actually coordinated by the set of (and interplay of) the ex ante, structural and financial control forms: By using extensive rule-based ex ante control, high level of structural and financial control, the activities of the individual public organizations are coordinated with each other in a rather automatic way. In this situation, coordination and control are very closely related. One could even say that coordination of the public organisations by HTM equals the sum of the (ex ante, structural and financial control of these agencies by the government (see equation in 8 And, that, following from the points (1 – 3) raised above, public organizations will have low levels of autonomy (both management and policy autonomy).

10

figure 2). Public organizations’ activities are coordinated by the control by the government of the individual public organizations. When government wants to use other coordination mechanisms than solely HTM, like NTM or MTM, this calls for an attenuation of the control forms that are related to the use of strict HTM, in particularly of ex ante control. This implies giving autonomy to the involved public organizations and decoupling them from hierarchical lines of control and accountability. One could think of the three coordination mechanisms as extremes in their pure form, which however can co-exist in their attenuated forms (see figure 3). The same hold to some extent for ex ante control and ex post control as specific forms of control. A maximum level of ex ante control is not to be combined with a maximum level of ex post control, because then there may be a severe control surplus (see Verhoest, Verschuere et al. 2004).

Figure 3. Extreme positions and continua of coordination mechanisms and control forms

pureHTM

pureNTM

pureMTM

pure ex antecontrol

pure ex post control

coordination mechanism

form of control

continuum

2.2 Coordination through networks and forms of control Although hierarchy is the typical mechanism used to create better coordination among organizations in the public sector, networking and the use of less formal modes of interaction are also important mechanisms. Networks are in this paper defined as ‘(more or less) stable patterns of (cooperative) interaction between mutually dependent actors around specific issues of policy’ (Kickert et al., 6). Organizations in networks are considered to be interdependent for their goal attainment, relatively closed and mutually different. Rather than depending upon formal authority derived from hierarchy, coordination through networks depends more on voluntary actions on the part of the organizations in question. While coordination using hierarchy-type mechanisms depends primarily on authority to achieve its purposes, coordination in networks depends primarily upon trust and on bargaining. In the first instance the members of the networks develop some reciprocal trust so that they can accept each others actions in good faith and also believe that any bargain that is struck will be effective. Coordination using

11

authority may be achievable relatively quickly if the participants in the process accept the legitimacy of the central actors, but coordination through networks will require some time and some interactions in order to develop sufficiently to be reliable. There should be some sharing of information among the organizations so that a minimum requirement for coordination and coherence can be fulfilled. Thus, networks tend to rely to a large extent upon shared information and mutual adjustment in coordination, rather than the use of authority to require that the organizations operate more cooperatively. The network form of coordination may not be as effective on average as the use of hierarchy, but it can be effective at very little cost of political capital or actual physical resources once the needed conditions for coordination have been attained. Rather than having coordination imposed ‘vertically’ from above, coordination in network-type arrangements tends to depend upon bargaining, negotiation and accommodation among the participants. From a government perspective coordination by cooperation among its public organizations evolves then rather ‘spontaneously’ in a horizontal way. One of the standard tenets from organization theory is that the environment of one organization is composed of other organizations, so that coordination can result from the more or less independent interactions of those organizations each attempting to pursue its own interests in that environment. However, in the contemporary ‘governance’ literature it is acknowledged that government can play an important role in creating, managing and sustaining cooperative networks between its public organizations (and other bodies), using ‘horizontal’ and ‘spontaneous’ coordination to the enhancement of its government policy. Nevertheless, the role and position of government is totally different compared to the situation where government is using HTM to coordinate the activities of organizations (see Kickert, et al., 12 table 2) The concept of ‘network management’ refers to ‘the coordination of the strategies of organizations with different goals and interests around a specific problem or policy issue within a network of interorganizational relations’. Such steering strategies are primarily focused on the improvement of cooperation between involved actors. A distinction is made between ‘process management’ and ‘network constitution’. As a process manager, government would seek to improve the interaction of actors in policy games within a given structure, composition and rules of a network. In doing so, government can for instance select and activate actors, improve mutual perception about an issue or solution, create temporary organizational arrangements between organizations, use convenants, manage conflicts (Klijn and Koppenjan 140-141; see for more advanced techniques at game level Kickert et al, 170, table 10.1). However, government can act as a ‘network constitutor’ and create or change the cooperative network itself. It can introduce actors or change positions of existing actors, introduce or change rules of interaction and decision making or ‘reframe’ the network by alter ideas about the functioning and the substantive problems of the network (Klijn and Koppenjan 140-141; Kickert et al. 170). It can even alter the involved policy itself.

12

In several policy fields, the Flemish government has introduced during the last decade fora for coordination of activities and views between its public organizations, private organizations, interest groups and/or citizens. Examples are to be found in fields as regional development, employment and education, mobility and infrastructure, social housing, child care. Interorganizational networks in the public sector can be concerned with policy development or matters of implementing policy. For instance, The UKs’ joined-up government initiative seems to be mainly aimed at coordinating the activities of public organizations and private organizations, when implementing a certain policy or overarching government priorities. This initiative fosters concertation and cooperation between the implementation agents, rather than its aims at bringing more views and debate in the policy development phase. If government wants to use NTM to coordinate activities of its public organizations (and other bodies), how should it control its public organizations to make sure that these public organizations can function well in the involved networks? Figure 4 presents some key features, again in a somewhat simplified and extreme way.

Figure 4. Coordination by NTM and forms of control

central government

agency A agency B

organization C organization D

NetworkCoordination = network management + indirect control (agency A - N)

+ self-coordination

indirect control (mainly ex post control)

'horizontal' 'spontaneous' coordination between agencies and organizations

network

network management by government

public sector If a government relies on NTM to coordinate the activities of its public organizations (and other organizations), one can assume: (1) That ex ante controls on the involved public organization will be weak or even

absent. The successful participation and cooperation of public organizations in

13

networks calls for the possibility to decide quickly on strategies, resources and actions in order to be able to react in a strategic way to the opportunities the network interactions create. So, public organizations governed by detailed regulations, SOPs and prior approvals by government will be hampered seriously. This calls for autonomization for units in ministerial departments. However, even semi-autonomous agencies with strong ex ante control procedures, like a general veto right by the minister, will find it difficult to operate flexibly as a network partner: the operation of the network would be seriously delayed because of the time-consuming veto right procedure (mostly up to one month). Therefore, when governments or even semi-autonomous agencies want to participate in PPP-organisations, they establish strongly autonomous agencies (or subsidiaries).

(2) That, in order to create the necessary flexibility, the government will control the

single public organization ex post on the results as to preset goals. The more a public organization is engaged in a network and cooperates with other actors to reach its goals, the main control from the centre needs to be based on ex post result assessment against set objectives. Because of the (changing) involvement of other actors there is no single way to attain its goals or execute tasks which can be laid down in SOPs. Instead, government will control the organization by its boundaries (general inputs to use and general results to achieve) (Bekkers 1994).

(3) That levels of structural control by government are rather low-. Public organizations

within particularly strong networks will be inclined to have a governing structure which allows network-partners to be involved in the strategic decision-making of the organization and in appointing and evaluating senior management. Instead of a CEO directly under the minister, such organizations would have governing boards with a major representation of non-governmental representatives. More involvement of non-governmental actors in governing boards, appointment of the CEO and board members are forms of network participation and lead in themselves to a need for more network participation by the public organization.

The boards and similar control organs of public organizations and other quasi-autonomous organizations tend to be populated at least in part by representatives of other public organizations. The mutual representation of these organizations forces some degree of networking among the organizations (cf. Swedish agency for Government Employers; Belgian Database for Social Security). In much the same way as having members of a board composed of other public organizations board memberships by private or quasi-public organizations also contribute to the capacity of these more informal arrangements to coordinate activity. This is especially true when the boards are given some real powers and play a role in shaping the programs of the public organizations. When the principal players in this process are interest groups or non-governmental organizations of any sort the coordination may result from their membership on multiple boards, or their more generalized relationships with multiple organizations that have relevance for one another (Cf. presence of social partners in all Belgian/Flemish agencies in the fields of social security, labour and economic policy).

14

(4) That public organizations will be less dependent on budget allocation from the

government, compared to organizations under hierarchical control/coordination9. In networks one of the resources exchanged between the partners may be financial resources. To rely on other sources than income from government could be an indication of networks participation and in turn, calls for stronger network participation by the public organization.

(5) These abovementioned links between NTM and specific forms of control can be

considered to be more explicit when the involved cooperation networks are stronger. The strength of a cooperative network is related with the degree of (in)formality of the network, the level of common responsibilities, common goals and the presence of common structures between the network partners.

In a situation where a government acts like a network manager and relies exclusively on coordination by NTM, activities of public organizations are not only coordinated by their control by government, which in this case mainly is ex post. Coordination is the result of the interplay of three factors, being (1) the ‘horizontal’ self-coordination between the public organizations and the others members of the network; (2) the control/management by the government of that network; and (3) the mainly ex post control by the government of the public organizations (see the equation in figure 4). We can formulate abovementioned assumed links as hypotheses which can be tested by the available statistical data (see Table 3). Looking at table 3, one may notice that the hypotheses are formulated from the viewpoint of the organizations, rather than from the viewpoint of central government. Since the survey asked for the perception of the senior management of the organizations as to, inter alia, control by central government and the presence of networks or competitive markets, the viewpoint of the organizations is our starting point. The hypotheses are tested for the Flemish public organizations of all types (cfr. Table 2), ranging from units within departments (type 1) to agencies with a board and a corporate status. The hypotheses are tested by comparing the mean value (ranking) of the independent variable (i.e. a specific form of control, be it ex ante, ex post, structural and financial) of those organizations which report to be part of a cooperation network with the mean value of those organizations, reporting not to be part of a cooperation network. Additionally, we made boxplots, cross-tabs and drew correlations where possible. Moreover, for each hypothesis, within the group of organizations under NTM we compared the organizations reporting to be under networks of different levels of strength, using the same four techniques. Where we have enough cases we additionally draw correlation statistics. For a detailed description of the way we operationalize variables and the used statistical analysis, see annex 1.

9 And, that, following from the points (1 – 3) raised above, public organizations will have rather high levels of autonomy (both management and policy autonomy).

15

Table 3. Hypotheses tested as to specific forms of control for public organizations under NTM and not under NTM Hypothesis I.A. In the case of coordination in a network environment (NTM’s), the organizations, involved in networks, will tend to be controlled by relatively lower levels of ex ante control compared to organizations which are not put in a network environment II.A. This relationship is more pronounced as the strength of the network in which the organization is involved, increases.

no significant differences found between groups of organizations participating in cooperative networks and not participating in networks, nor between groups participating in weak or strong networks. Hypothesis I.B. In the case of coordination in a network environment (NTM’s), the organizations, involved in networks, will tend to be controlled by relatively higher levels of ex post control compared to organizations which are not put in a network environment II.B. This relationship is more pronounced as the strength of the network in which the organization is involved, increases.

no significant differences found between groups of organizations participating in cooperative networks and not participating in networks, nor between groups participating in weak or strong networks. Hypothesis I.C. In the case of coordination in a network environment (NTM’s), the organizations, involved in networks, will tend to be controlled by relatively lower levels of structural control compared to organizations which are not put in a network environment II.C. This relationship is more pronounced as the strength of the network in which the organization is involved, increases.

no significant differences found between groups of organizations participating in cooperative networks and not participating in networks, nor between groups participating in weak or strong networks. Hypothesis I.D. In the case of coordination in a network environment (NTM’s), the organizations, involved in networks, will tend to be controlled by relatively lower levels of financial control compared to organizations which are not put in a network environment. II.D. This relationship is more pronounced as the strength of the network in which the organization is involved, increases.

no significant differences found between groups of organizations participating in cooperative networks and not participating in networks, nor between groups participating in weak or strong networks. It is always somewhat disappointing when writing a paper to find out that statistical tests of hypotheses do not show any significant results. Then again, it is challenging to figure out what the reasons for the absence of such results could be. This will be done in the third part of the paper.

2.3 Coordination through markets and forms of control In their most-basic form markets are means of coordination, bringing together buyers and sellers through a price mechanism to facilitate exchange. Markets perform this function most optimally when there are enough purchasers and providers, when providers can enter and exit the market without incurring high costs, when there is full transparency as to information about prices and quality of services (Plug and Van Twist, 14; Le Grand and Bartlett 1993). This neo-classic conception of the market may work well for economic exchanges but does not correspond directly to decision-making situations within government. That having been said, relationships analogous to markets can be

16

created within the public sector and these relationships can be used as mechanisms for coordinating organizations and their programs. Within the public sector quasi-markets and economic incentives are used to create the incentives for actors to coordinate, and to enhance their collective performance. Some of the more successful examples of programs using market based mechanisms for coordination have been found in the health sector. Quasi-markets have been used to bring together purchasers and providers through contracts. The primary intention of these programs has been to lower costs and enhance the efficient allocation of resources (Jerome-Forget, White and Wiener, 1995). Internal markets have also been used in areas such as eldercare, housing, and child-care, all being used as means of bringing together service demand and service provision and as means of coordination between service providers (Le Grand & Bartlett 1993;OECD 1993 ). For coordination of the activities of autonomous public organizations, markets provide somewhat less clearly defined opportunities for coordination than HTM or NTM. To the extent that these organizations are providing services that need to be coordinated as has been true for the health, then markets and contracting among them may be effective means of coordination. Whereas network coordination could involve both policy development and implementation, MTM are generally reserved for matters of policy implementation (with New Zealand as exception). When operating in a well-performing market, service-providing public organizations will get clear signals as to what extent the quality and level of their services is adjusted to the demand by its users and to the supply by other public organizations or private sector organizations. Such signals will come from the level of income it gains from selling its services and of increase or decline of market shares. In that sense, a kind of automatic coordination occurs between services provided by public organizations and other organizations, which provide similar services. Also between public organizations as purchasers and public organizations as providers price and contracts ensure coordination of activities. As shown in the examples of internal and quasi-markets, government can deliberately construct and shape markets that involve public sector public organizations. The most explicit example is the liberalization of markets of telecommunication, public transport, postal services and energy under EC directives. When creating a market, the government must ensure at least two conditions: (1) there must be a clear link between the service of a public organization and the price that is reflecting the (fluctuating) value of the service on the market; and (2) there must be competition between providing organizations and freedom of choice for the users of the service. Therefore government must regulate (or deregulate) market entry and exits, price formation, set minimum standards for quality, safety, ensuring accessibility for each kind of user, etc. The government has to monitor the market, avoid monopolies or monopsonies, and to sanction non-compliant organizations. In this respect government acts as the ‘midwive’ of markets (Plug and Van Twist). However when government creates market competition to coordinate the activities of its public organizations, it must ensure enough ‘distance’ between itself and the involved

17

public organizations. Such distance is needed for ensuring a ‘playing level field’ between the competing public organizations and private organizations. It is also necessary to avoid accusations of preferential treatment by competitors. To that purpose and to ensure that the public organizations can operate well in the market environment, government can only control the involved public organizations in a certain way. Figure 5 presents some key features, again in a somewhat simplified and extreme way.

Figure 5. Coordination by MTM and forms of control

central government

agency A agency B

organization C organization D

MarketsCoordination = market regulation + indirect control (agency 1-N)

+ self-coordination

indirect control (mainly ex post control)

'horizontal' 'spontaneous' coordination between agencies and organizations

market

market creation&regulation and by government

public sector

If a government relies on MTM to coordinate the activities of its public organizations (and other organizations), one can assume: (1) That government will weaken or abolish ex ante control on the public organization.

Strict rules, procedures, veto rights or ex ante approvals make it impossible for the public organization to react in a quick and efficient way to changing market conditions or changes in the competitors’ behavior (OECD 1993). Organizations will be autonomized, and agencies with ex ante controls will see such procedures being abolished.

(2) That, in order to create the necessary flexibility, the government will control the

single public organization ex post on the results as to preset goals. The autonomization of the telecommunication, railway and postal public organizations in autonomous governmental enterprises and subsequently in companies with government as the main shareholder at the federal level in Belgium was aimed at preparing these public organizations for a liberalised market by giving them more management autonomy and reducing ex ante controls. Government control of these companies was to be exercised mainly through the negotiation, monitoring and

18

evaluation of performance contracts and the issuing of performance incentives. In other countries public organizations on liberalised markets have seen similar shifts in the government control arrangements.

(3) That levels of structural control by government are rather low. The involvement of

non-governmental actors in the governing boards is quite clear in the case of public organizations which are partly owned by private shareholders. Public organizations on liberalized markets have in some cases been wholly or partly privatized as to their ownership. However, involvement of non-governmental representatives may also be the case in public organizations which are still fully owned by government, as under corporate governance rules the involvement of independent board members is advocated for commercial public organizations in several countries (e.g. Irish Department of Finance 2002). Reducing governmental representatives in governing boards helps to avoid accusation of collusion between government and public organization.

(4) That public organizations will be less dependent on budget allocation from the

government, compared to organizations under hierarchical control/coordination10. More than for public organizations engaged in networks, it is clear that public organizations engaged in market competition will have greater shares of their income out of non-governmental sources, mostly by selling their services on the market. Moreover, if government wants to incentivize its public organizations to respond properly to competition, it has to couple the income of the public organization with their performance. And one way of securing a level-playing field between public organizations and private sector organizations is to reduce or even abolish funding by government (and at least to avoid cross-subsidization).

(5) These abovementioned links between MTM and specific forms of control can be

considered to be more explicit when the level of competition on the market is stronger.

Coordination by MTM is the result of the interplay of three factors, being (1) the ‘horizontal’ self-coordination between the public organizations and the others members in the market by the forces of price, competition, supply and demand; (2) the control/management by the government of the market; and (3) the mainly ex post control by the government of the public organizations (see equation in figure 4). Again, we formulate abovementioned assumed links as hypotheses which are tested by the available statistical data (see table 4). Again hypotheses refer to the viewpoint of the public organizations: the involvement of the public organization in a MTM is conceptualized as to what extent the public organization perceives other competitors providing similar goods or services in the area the public organization is involved in. Again, all types of Flemish organizations are included in the sample (cf. table 2). 10 And, that, following from the points (1 – 3) raised above, public organizations will have rather high levels of autonomy (both management and policy autonomy).

19

For a detailed description of the way we operationalize variables and the used statistical analysis, see annex 1. Table 4. Hypotheses tested as to specific forms of control for public organizations under MTM and not under MTM Hypothesis III.A. In the case of coordination in a market environment (MTM’s), the organizations, involved in competition, will tend to be controlled by relatively lower levels of ex ante control compared to organizations which are not put in a market environment IV.A. This relationship is more pronounced as the strength of the competition in which the organization is involved, increases.

no significant differences found between groups of organizations faced with competitive markets and not participating, nor between groups faced with weak or strong competition. Hypothesis III.B. In the case of coordination in a market environment (MTM’s), the organizations, involved in competition, will tend to be controlled by relatively higher levels of ex post control compared to organizations which are not put in a market environment IV.B. This relationship is more pronounced as the strength of the competition in which the organization is involved, increases.

no significant differences found between groups of organizations faced with competition and not faced with competition, nor between groups faced with weak or strong competition. Hypothesis III.C. In the case of coordination in a market environment (MTM’s), the organizations, involved in competition, will tend to be controlled by relatively lower levels of structural control compared to organizations which are not put in a market environment IV.C. This relationship is more pronounced as the strength of the competition in which the organization is involved, increases.

no significant differences found between groups of organizations faced with cooperative competition and not faced with competition, nor between groups faced with weak or strong competition. Hypothesis III.D. In the case of coordination in a market environment (MTM’s), the organizations, involved in competition, will tend to be controlled by relatively lower levels of financial control compared to organizations which are not put in a market environment. IV.D. This relationship is more pronounced as the strength of the competition in which the organization is involved, increases.

no significant differences found between groups of organizations faced with cooperative competition and not faced with competition, nor between groups faced with weak or strong competition. Again, none of the hypotheses is supported by the analyses. Next part of the paper will examine how this could be explained.

2.4 Coordination by networks or markets However, before looking for explanation we should do an additional statistical analysis related to one very obvious explanation for the non-results of both the tests for the NTM- and the MTM-hypotheses. As one may have noticed the basic logic of the different NTM – hypotheses and the MTM-hypotheses is similar. Therefore, it makes sense to group both analyses and to compare the evidence between

20

• on the one hand, the group of public organizations which participate in a cooperation network, which are under competition or which face both network and competition, and

• on the other hand, the group of public organizations which are not participating in a network and not facing competition.

Since the results of both analyses of the NTM- and the MTM-hypotheses may be distorted: public organizations which are not participating in a cooperation network, may still be facing competition, and could be assumed to show low levels of ex ante control, structural control and financial control. The same holds for public organizations that are not under competition: they can be participating in networks, displaying corresponding forms of control (see hypotheses V.A.-D. annex 2). However, also these ‘grouped’ analyses did show no significant results for all four hypotheses.

3 Explaining empirical (non)-results So, according to our tests, at least in the Flemish case, there seems to be no differences between public organizations which participate in cooperation networks and/or which are faced with competition on the one hand and public organizations which are neither in networks, nor in competition on the other hand as to the way they are controlled by the government. Assuming that government uses these networks or market competition deliberately to coordinate the activities of the public organizations (with one another or with other organizations), this would mean that the government does not make any difference in the way it controls the public organizations for public organizations coordinated by NTM or MTM and public organizations not coordinated by such mechanisms, or that it uses coordination mechanisms independently of the way it controls the involved agencies. However, one would expect to see clear differences. There are several possible groups of explanations for the lack of support for the hypotheses by the empirical tests: explanations referring to quality of the data and the statistical methods used, explanations referring to the way we operationationalized concepts, explanations referring to incorrect or incomplete assumptions of our hypotheses, and explanations referring to the particularities of the used data as ‘unique or special’ case. In this part11 we focus on the latter three groups of explanations and try to assess their value.

11 We argue that we have taken sufficient care to match the statistical techniques with the quality and size of the data set. Our data set has two features of importance here: the variables are mainly ordinal of kind and the sample to perform tests upon was for some hypotheses quite small. We dealt with these problems firstly by using different techniques (simple box plots and cross-tabs versus mean-testing and correlations), to see to what extent the outcomes would support one another. As to the mean-testing and correlations, we used the non-parametric tests (see annex 1).

21

Six broad possible explanations for non-results can be distinguished. These six elements should be taken into account in further research on the link between coordination mechanisms and control arrangements. (1) First, in our hypotheses we do not take into account what kind of tasks the public

organizations execute. One could argue that the assumed shift to ex post control, rather than ex ante, structural or financial control in the case of NTM of MTM, will hold for public organizations with some tasks but not for public organizations with other tasks. For instance, ex post result oriented control by government is likely to develop much easier in case of public organizations with implementing or commercial functions, compared to public organizations with advisory and regulatory functions. In the same way, the reduction of financial control of public organizations is quite unlikely for advisory and regulatory public organizations (certainly if government wants to protect them from being captured by interest groups and industries). In their recent comparative study of the control arrangements of agencies Pollitt et al. (2004) find that the nature of the task does matter a lot. Refined hypotheses would have to take into account the task performed by the public organization. Because of small N –problems, we could not perform tests on such refined hypotheses.

(2) Second, some of our control concepts and their operationalization seem to be too

simplistic in the context of NTM and MTM. • Ex ante control is operationalized in this context as the minister having a right to veto

the decisions of the public organization12. Where ‘de iure’ this veto right extends to all decisions made by the public organization, its board, the CEO and lower levels management, in practice it only is applicable to the decisions made by the board of the public organization. So, the matters delegated by the board to the CEO and further down are not affected by the ex ante control through veto right. One could then argue that the non-results point at the decision making competences that public organizations need to function well in markets or networks being delegated by the board to the CEO and lower levels. When delegated, these decisions would not be submitted to the ex ante control of the minister.

• Ex post control is operationalized in our analysis along the NPM-philosophy: goals

are stated in public documents, are set by or with involvement of the principal, are translated in indicators, which are then measured, evaluated and eventually rewarded/sanctioned by the principal. This concept reflects a highly rational, straightforward cycle of policy development and implementation. However, scholars argue that networks do not function along rational lines. Goal-searching and –stretching, decision making being based on negotiated information and being iterative, evaluation being based on process-criteria and on ex post satisficing, rather than on unilaterally by government determined goals: such features are considered as

12 The most comprehensive analysis in this perspective would also encompass the analysis of the link between the coordination mechanism (NTM, MTM) and the level of autonomy (both management and policy). Such analysis goes beyond the scope of this paper.

22

being central to the operations of networks (De Bruijn and Koppenjan 1999). One could argue that our definition of strict ex post result oriented control on public organizations which are heavily involved in networks may conflict with the ever-evolving goals and processes of networks. From that perspective, government needs to exercise ex post control of public organizations involved in networks would in a rather flexible and reflexive way, leaving room for adjustment of goals and targets of the networks and its participants. Ex post control then needs to be process-oriented, with a focus on aspects of participation and negotiation of the network processes and the role of the public organization in these (Klijn and Koppenjan). Ex post control in such context focuses also on outcomes, rather than on outputs of the agency. The operationalization of ex post control in this analysis should thus be more sophisticated than ours.

• Also in the context of MTM and competition as a way to coordinate public

organizations’ activities, our definition and operationalization of ex post result oriented control may be defined too broadly. In a fully functioning market, the specific goals and targets of the public organization with respect to quantity or quality of services do not have to be set by government. The goals and targets with respect to quantity and quality of services are set within the bilateral relations of the service providing public organization and the users/purchasers. Moreover, the monitoring and evaluation of quantity and quality of the public organizations’ services is done by the users/purchasers. Indeed, the ex post control of the public organization is mainly part of the ‘horizontal’ relations between the public organization and its individual users/purchasers. Government then can rely on a very general level of ex post control, focusing solely on financial targets of profit/loss of the public organization. In a perfect competitive market, the financial situation of the public organization gives sufficient information to the government about the market share of the public organization and the quantity and quality of its services, compared to the competing service providers. Our operationalization of ex post control in this paper does not distinguish between service quantity and quality on the one hand and purely financial information on the other hand as foci.

• Our concept of structural control focuses on formal aspects, like the presence of a

board and the representation of government on that board. However, the presence of these formal channels for control does not mean that the minister actually makes use of them. For instance, high levels of structural control of public organizations which are participating in networks do not mean that government really interferes in decisions made by the organization. Moreover, informal forms of control of the minister through CEO and board are not taken into account. Public organizations which are not under NTM or MTM with low levels of structural control may still be heavily controlled by the minister/government, but then in an informal way.

(3) A third main group of explanations for the non-results may have to do with the used

concepts and measurements of networks and markets. More important than the previous possible explanations, our hypotheses and analysis do not take into account

23

what kind of networks or competition the public organizations are involved in. We could think of three issues in this context.

• The very nature of the cooperation networks can influence for a great deal the extent

to which the involved public organizations can still be steered by high levels of ex ante, structural and financial control. The cooperation networks can be purely ‘horizontal’, bottom-up, and voluntary of character, or they can embody hierarchical elements in them. When looking at the exact description of the networks the Flemish public organizations report to be involved in13, it is clear that most of the networks are mainly focused on the implementation of specific tasks, that they are rather top-down, rule-based and still quite hierarchical in character. In such networks the public organization itself is the dominant partner which ‘regulates’ and funds to a large extent the activities of the other partners. This funding is not based on a competitive tendering procedure, but rather on a kind of certification procedure within regulations of government. The other partners are somewhat forced to join in the ‘cooperative’ relationship with the public organization: probably they would not consider the relationship to be of a network kind themselves. As in Flanders much policy implementation in social and cultural matters involves private non-profit organizations, quite a lot of public organizations are ‘engaged’ in such networks as dominant partners14. In such strongly ‘hierarchical networks’ the public organizations may still be controlled by government by high levels of ex ante, hierarchical and financial controls, as the public organizations and government themselves dominate the other partners and the network processes. Moreover, in such networks one can even expect the government to be still highly involved in the public organizations’ decision making, since the public organization sets the policy and procedures of the network. When drafting hypotheses in future research, one should distinguish between public organizations involved in more ‘horizontal, bottom-up’ networks and public organizations involved in rather ‘top-down, hierarchical’ networks in order to get more clear results.

• Also as to competition and MTM, the data do not distinguish between kinds of

competition. As became clear from some case studies (Verhoest 2002; Van Osselaer 2004), the competition as perceived by the public organizations in the survey ranges from direct competition by other providers with similar goods to indirect and even potential competition by other providers. For instance the public organization responsible for shipments of goods throughout Flanders perceives competition of the other modes of freight carriage, like road transport or air transport. Such indirect or potential competition is maybe not deliberately wanted or even known by government and therefore government may not adjust the way the involved public organization is controlled.

13 In the survey, the public organizations could report additional information about the cooperation network in open answer fields, where we asked for the principal actor in the cooperation network, other than the parent department. 14 For instance, the Flemish Employment Service engages non-profit organizations for job mediation and vocational training for groups of long-term unemployed jobseekers. The Flemish Child Support Public organization rely on networks of non-profit organizations for the implementation of post-natal child care schemes.

24

• In our hypotheses there is an underlying assumption that public organizations, which

are not coordinated by MTM or NTM, ought to be coordinated by HTM (see also figure 3). These public organizations are thus controlled by government through high levels of ex ante, structural and financial control. However, some of these public organizations could be in a state of non-coordination, for instance because they perform a stand-alone task which does not link to activities of other organizations or simply because government does not bother to coordinate their tasks. When taking into account that some public organizations are not coordinated at all, our hypotheses should distinguish for this group of public organizations. Since for non-coordinated public organizations, one cannot state clearly what kind of government control one could expect (probably no control or a uneven mix of control forms). This could explain why public organizations that are not in networks or competition show no significant differences in levels of control with public organizations in networks or competition.

(4) A more fundamental explanation for non-results would relate to the performance of

the public organizations themselves within a network or competitive environment that we did not check in the analyses. Since we took organizational ecology as one of the theoretical frameworks we assumed that the public organizations in networks and competition, which are controlled in inappropriate ways would not survive because they would not be able to function efficiently in their environments. However, economic efficiency or economic rationality is not the only criterion for persistence of administrative structures; some theoretical frameworks even believe that it is of no importance to political principals when they set up public organizations. Moe as one of the main founders of the theory of ‘political control of bureaucracy’ for instance refers to political rationality/efficiency as the main criterion in creating and sustaining public organization structures (Moe 1991, Horn 1995, see also for a rational choice perspective on dysfunctional institutions Miller 2000). In that perspective it could be well the case that the public organizations in networks and competition under high levels of ex ante, structural and financial control would show low levels of performance in terms of economy, efficiency and effectiveness. However, the rational for the high levels of ex ante or structural control could be solely of a political nature. For instance, Flanders has a tradition of highly politicized governing boards, which could be interpreted in some cases as a way of shielding off the standing policy of public organizations from changes in government coalition.

(5) The latter explanation still takes rational behavior of government in its coordination

and control roles for granted, albeit not directed to economic efficiency but rather to political efficiency. But one could even argue that the existing patterns of control and coordination do not necessarily reflect rational behavior by government. Maybe governments - in this case the Flemish government - do not necessarily reflect on the (in)compatibility of control and coordination arrangements from the viewpoint of the involved public organizations. When installing other forms of coordination, like NTM’s and MTM’s, they do not get rid of the old mechanisms, but just supplement them. Old control and coordination mechanisms, like ex ante mechanisms, seem stay

25

in place like vestigial organs that remain even if they have lost their vital function because of evolutionary progress.

(6) A last fundamental potential explanation would be that Flanders is a ‘unique’ case, so

distinct from other OECD countries as to the control forms and culture, that the general hypotheses elaborated above do not hold in the Flemish case, but do hold for other countries. As some elements may be less present in other countries, like the prevalence of ex ante control by means of veto right and ‘commissaires de gouvernement’, the politicized nature of governing boards and the rather hierarchical nature of networks, it is hard to argue that such elements mounts up to a total distinct politico-administrative character of Flanders, compared to other countries as France (cfr. OECD 2002).

In line with the previous arguments, it is probably more promising to think of government control of public organizations (1) as being not (purely) driven by economic rationality, but also by political rationality; (2) as being influenced by country-specific historical-cultural paths and tasks-specific features (see Pollitt et al. 2004); (3) or even as irrational, leading to ‘vestigial’ control and coordination mechanisms existing alongside new mechanisms.

26

References: Bekkers, V. (1994). Nieuwe vormen van sturing en informatisering. Chisholm, D. (1989) Coordination without Hierarchy: Informal Structures in Multiorganizational Systems. Berkeley: University of California Press. Davis, G. (1996) A Government of Routines: Executive Coordination in an Australian State. Melbourne: Macmillan. De Bruijn J.A., ten Heuvelhof E.F. (1999). Management in netwerken. (Tweede druk). Lemma: Utrecht. Heffron, F. (1989); Organisation theory and public organisations – the political connection. Prentice Hall. New Jersey. Hood, C. and Dunsire, A. (1981); Bureaumetrics. London, 312p. Huber, J. D. and C. R. Shipan (2002) Deliberate Discretion?: The Institutional Foundations of Bureaucratic Autonomy. Cambridge: Cambridge University Press. Irish Department of Finance (2002). Code of Practice for the governance of state bodies. Dublin. Jensen, L. (2003) Aiming for Centrality: the Politico-Administrative Strategies of the Danish Ministry of Finance, in J. Wanna, L. Jensen and J. de Vries, Controlling Public Expenditure: The Changing Roles of Central Budget Public organizations--Better Guardians. Cheltenham: Edward Elgar. Jerome-Forget, M., J. White and J. M. Wiener (1995) Health Care Reform Through Internal Markets. Montreal: Institute for Research on Public Policy. Kaufmann, F. X., G. Majone, and V. Ostrom , eds. 1986. Guidance, Control and Evaluation in the Public Sector. Berlin: de Gruyter. Kickert, W.J.M, E-H. Klijn & J.F.M. Koppenjan. (eds.). (1997). Managing complex networks: strategies for the public sector. London, SAGE. Klijn, E.H. & Koppenjan, J.F.M. (2000). Public management and policy networks: foundations of a network approach to governance. Public Management, 2, 135-158. Lægreid, P., V. W. Rolland, P. G. Roness and J.-E. Ågotnes. The structural anatomy of the Norwegian state 1947-2003. Paper presented on the seminar on organizational forms, autonomy and control in the public sector. Bergen, 1-2 December 2003

27

Legrain, Amaury, Verhoest, Koen (2004). Le secteur public en France et en Belgique : de la coordination hiérarchique à la coordination par réseaux. Politiques et Management Public. 22 (3), pp. 163-191. Le Grand, Julian and Will Bartlett. 1993. Quasi-markets and social policy. London: McMillan Lynn, Laurence E., Carolyn J. Heinrich, and Carolyn J. Hill. 2001. Improving Governance: a New Logic for Empirical Research. Washington D.C.: Georgetown University Press. Miller, Gary (2000). Rational choice and dysfunctional institutions. Governance, 13 (4): 535-547. Ministry of Finance (2003) Final Report of the Ministerial Working Group. Helsinki: Ministry of Finance. OECD. 1993. Managing With Market-Type-Mechanisms. Paris: OECD. O'Toole, L. 1997. "Treating Networks Seriously: Pratical and Research-Based Agendas." Public Administration Review 57(1):45-52. Peters, B. G. 1998. "Managing Horizontal Government: the Politics of Co-Ordination." Public Administration 76(4):291-305. Peters, B. G. 2003. "The Capacity to Coordinate. " Paper presented at the workshop on Policy Capacity in October 2003, Hong Kong, 39 p. Plug P., Van Twist M. , Geut L. (2003). Sturing van marktwerking: de bestuurlijke gevolgen van liberalisering en privatisering Pollitt, C. and Bouckaert, G. (2000). Public Management Reform. A Comparative Analysis, Oxford University Press, 314p. Pollitt Christopher, Talbot Colin, Caulfield Janice and Smullen Amanda. (2005). Agencies. How governments do things through semi-autonomous organizations. Basingstoke: Palgrave Macmillan. Thompson G. H. (2003) Between hierarchies and markets: the logic and limits of network forms of organization. Oxford University Press. New York Thompson, G., J. Frances, R. Levacic and J. Mitchell (1991) Markets, Networks and Hierarchies. London: Sage. Verhoest, Koen, Bouckaert, Geert. (2005). Machinery of government and policy capacity: the effects of specialisation and coordination. In: Martin Painter, & Jon Pierre,

28

(Eds.) Challenges to state policy capacity: global trends and comparative perspectives (pp. 92-111). Basingstoke: Palgrave Macmillan. Verhoest Koen, Peters B. Guy, Bouckaert Geert and Verschuere Bram. (2004) The study of organizational autonomy: a conceptual review. Public Administration and Development. 24(2): 101-118. Verhoest Koen, Verschuere Bram, Peters Guy B., Bouckaert Geert (2004). Controlling autonomous public agencies as an indicator of New Public Management. Management International / International Management / Gestion Internacional. 9(1): 25-35.

29

Annex 1. General notes on the empirical data and methods used

Data collection

The data allowing to test the formulated hypotheses about the link between coordination and control have been collected by means of a web-based survey. This survey was conducted from October 2002 till April 2003 and focused on collecting data about the profile, autonomy, control, culture and performance of Flemish public sector organizations. These data do not reflect objective measurements, but rather reflect opinions of the respondents. In total, data were gathered for 84 organizations, which were then divided in 5 formal-legal types (continuum of organizational forms that should represent an increasing level of autonomy).

After computing a number of descriptive statistics (correlations, cross-tabs) and graphical analyses (box plots, bar charts), non-parametric test - Mann-Whitney U rank-sum test or Kruksal-Wallis one-way analysis of variance - have been applied to the data set in order to test the formulated hypotheses. Due to small-n problems for certain hypotheses it was necessary to opt for distribution-free tests for certain hypotheses. In order to preserve the uniformity of the data analysis and the rather limited number of total cases available (n=84), non-parametric tests were used for all analyses.

30

Annex 2. Steps in and results of data analysis Hypotheses tested about specific forms of control for public organizations under NTM versus organisations not operating in a NTM-environment Hypotheses (1) In the case of coordination in a network environment (NTMs), the organizations, involved in networks, will tend to be controlled by

(A) relatively lower levels of ex ante control (B) relatively higher levels of ex post control (C) relatively lower levels of structural control (D) relatively lower levels of financial control

compared to organizations which are not put in a network environment (2) This relationship is more pronounced as the strength of the network in which the organization is involved, increases. Definition and measurement of used concepts * network environment (NTMs) Involvement of the organisation in cooperation networks with other organisations:

0 : no 1 : yes

* strength of network(netw3rec) Strength of the network, based on 4 survey items measuring the degree of formality of the network, degree common responsibilities within the network, degree of common goals and degree of common structures. Each of these items was measured on a scale from 1 to 10. An average score for each respondent on these 4 items was then calculated. These scores were regrouped into 3 categories (score [1-5] = weak, ]5-7] = moderate, ]7-10] = strong): 0 = weak .5 = moderate 1 = strong * ex ante control 1/ Indexa1 Has the oversight minister or the oversight department a veto-right concerning the decisions of the organisation?15 15 Related to the ex ante control measurement: only organizations of type 4 and 5 are included, because these are the only types of organizations having a board.

31

0 : no .5 : yes in general terms 1 : yes in detail

2/ Indexa2 “Has the oversight minister or department influence on the decisions of the organisation via means of representatives in the decision making bodies of the organisation? (Yes, in detail = 1, Yes, in general terms = .5, No = 0)”

1 : yes in detail ,5 : yes in general terms 0 : no

* ex post control (labelled Resstc) Results control is operationalized in a five phase result control cycle. We include in the cycle: (1) setting organizational goals in a specific result oriented document, (2) using indicators to make goals measurable, (3) measuring the organizational results, (4) the evaluation of the organizational results and (5) the existence of sanctions and rewards. We construct, based on these five phase a cumulative index of result control. This index is logically constructed according to following idea: an agency can only be subject of control by the oversight authorities in a phase in the result control cycle when it was also controlled in the previous phase. This is thus a cumulative logic:

.17: Document, setting goals itself

.34: Document, others involved in goal setting, no indicators

.50: Document, others involved in goal setting, indicators, no measurement of results .67: Document, others involved in goal setting, indicators, measurement of results, no evaluation of results by oversight .83: Document, others involved in goal setting, indicators, measurement of results, evaluation of results by oversight, no sanctions nor rewards 1: Document, others involved in goal setting, indicators, measurement of results, evaluation of results by oversight, sanctions or rewards or both

* structural control (labelled govinboa2) Percentage of representatives of oversight authorities in the board:

0: no representatives of oversight authorities in board .33: less than 50% representatives of oversight authorities .66: organisational board has for more than 50% of its members representatives of the oversight authority 1: No organisational board

* financial control (labelled finstc)

32

Source of financial resources:

0 = organization receives no financial resources from the oversight authorities (and is self financing by e.g. fees)

.5 = organization is partly financed by oversight authorities, partly self financing 1 = organizational receives all of its financial resources from the oversight authorities Results

HP1: In the case of coordination in a network environment (NTMs), the organizations, involved in networks, will tend to be controlled by: Mann-Whitney U rank-sum Test

N Mann-Whitney U Z Asymp. Sig. (2-tailed)

(A) relatively lower levels of ex ante control (indexa1) 26 66,5 -0,346 0,729 (0,76516) (A’) relatively lower levels of ex ante control (indexa2) 26 80 -0,146 0,884 (0,91917)

(B)relatively higher levels of ex post control 77 641,5 -0,375 0,707 (C ) relatively lower levels of structural control 69 440,5 -1,502 0,133

(D) relatively lower levels of financial control 66 451 -0,139 0,889

compared to organizations which are not put in a network environment

HP2: The relationships defined under HP1 are more pronounced as the strength of the network in which the organization is involved, increases: Kruskal Wallis N Chi-square df Asymp.Sign. (A) relatively lower levels of ex ante control (indexa1) 17 3,329 2 0,189 (A’) relatively lower levels of ex ante control (indexa2) 17 1,422 2 0,491

(B)relatively higher levels of ex post control 44 3,85 2 0,146 (C ) relatively lower levels of structural control 39 1,746 2 0,418

(D) relatively lower levels of financial control 39 5,868 2 0,053

16 Exact Sig. [2*(1-tailed Sig.)] 17 Exact Sig. [2*(1-tailed Sig.)]

33

Hypotheses tested about specific forms of control for public organizations under MTM versus organisations not operating in a MTM-environment Hypotheses (3) In the case of coordination in a market environment (MTM’s), the organizations, involved in competition, will tend to be controlled by

(A) relatively lower levels of ex ante control (B) relatively higher levels of ex post control (C) relatively lower levels of structural control (D) relatively lower levels of financial control

compared to organizations which are not put in competition (4) This relationship is more pronounced as the strength of the competition in which the organization is involved, increases. Definition and measurement of used concepts * competitive environment (MTMs) Presence of other institutions that deliver the same products and/or services in the territory where the organisation is active

0 : no 1 : yes

* strength of competitive environment Strength of the competitive environment: ,5 : weak competitive environment (rather limited number of competitors) 1: strong competitive environment (rather many competitors) * ex ante control * ex post control * structural control * financial control

cf. NTM – hypotheses

34

Results

HP3: In the case of coordination in a competitive environment (MTMs), the organizations, involved in competition, will tend to be controlled by: Mann-Whitney U rank-sum Test

N Mann-Whitney U Z Asymp. Sig. (2-tailed)

(A) relatively lower levels of ex ante control (indexa1) 26 68 -0,717 0,473 (0,55118) (A’) relatively lower levels of ex ante control (indexa2) 26 80 -0,146 0,884 (0,91919)

(B)relatively higher levels of ex post control 78 701 -0,578 0,563 (C ) relatively lower levels of structural control 70 570 -0,574 0,566

(D) relatively lower levels of financial control 67 551,5 -0,118 0,906

compared to organizations which are not put in competition

HP4: The relationships defined under HP3 are more pronounced as the number of other providers on the market in which the organization is involved, increases: Mann-Whitney U rank-sum Test

N Mann-Whitney U Z Exact Sig. [2*(1-tailed Sig.)]

(A) relatively lower levels of ex ante control (indexa1) 10 9 -0,707 0,61 (A’) relatively lower levels of ex ante control (indexa2) 11 13 -0,404 0,792

(B)relatively higher levels of ex post control 34 111 -0,357 0,752 (C ) relatively lower levels of structural control 31 77,5 -0,371 0,764

(D) relatively lower levels of financial control 30 86,5 -0,405 0,722

18 Exact Sig. [2*(1-tailed Sig.)] 19 Exact Sig. [2*(1-tailed Sig.)]

35

Hypotheses tested about specific forms of control for public organizations under MTM and/or NTM versus organisations not operating in a MTM-environment, nor a NTM-environment Hypotheses (5) In the case of coordination by NTM’s or MTM’s, the organizations, involved in networks or competition, will tend to be controlled by

(A) relatively lower levels of ex ante control (B) relatively higher levels of ex post control (C) relatively lower levels of structural control (D) relatively lower levels of financial control

compared to organizations which are not put in a competitive environment, nor a NTM-environment. Results HP5: In the case of coordination in a network environment (NTMs) and/or competitive environment (MTMs), the organizations, involved in networks and/or a competitve environment, will tend to be controlled by: Mann-Whitney U rank-sum Test N Mann-Whitney U Z Asymp. Sig. (2-tailed) (A) relatively lower levels of ex ante control (indexa1) 26 59 -0,069 0,945 (0,97620) (A’) relatively lower levels of ex ante control (indexa2) 26 45,5 -0,995 0,320 (0,38721)

(B)relatively higher levels of ex post control 78 550 -0,36 0,719

(C ) relatively lower levels of structural control 70 346,5 -1,439 0,15

(D) relatively lower levels of financial control 67 327 -0,751 0,453

compared to organizations which are neither put in a network environment, nor in a competitive environment

20 Exact Sig. [2*(1-tailed Sig.)] 21 Exact Sig. [2*(1-tailed Sig.)]

36