Pub503 Separation Of Powers Final Analysis

Public vs. Private Governance -Julie Rada

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Analytical Study:

Public Governance vs. Private Governance

The Separation of Powers

Julie Rada

December 7, 2010

PUB503 PR

Public vs. Private Governance -Julie RadaPage 1 of 13

Public Administrative Theory and the Separation of Powers discusses the application of

public administration management theory looking at divergent methods involving the executive,

legislative, and judicial functions in governance (Rosenbloom, (1983) 2004). Addressing the

argument that there has been a collapse in the separation of powers, Rosenbloom notes that a

system of checks and balances has devolved to the practice of governance, incorporating each of

the three theoretical methods. Each approach may be more or less relevant to different agencies,

administrative functions, and policy areas. Administrative actions are circumscribed by internal

considerations of checks, balances, and administrative and political pressures. Public

administrators are often called upon to integrate these three approaches to public administration.

Management in the private sector is not subject to the constraints inherent with separation

of powers. Increased attention is being focused on private governance in the wake of the recent

financial collapse, government bailouts, and attendant scandals relating to fraudulent

bookkeeping and excessive manager compensation (Benz & Frey, 2007). Academic public

administration curriculum typically includes scholarly work focused on what the discipline can

learn from management practices in the private sector. Indeed, disciples of public management

transformation extol the virtues of entrepreneurial spirit. Benz and Frey make a case for the

adoption of certain public sector approaches as a means to improve governance in the private

sector. “The public governance perspective offers a distinct set of theoretical ideas on corporate

governance … (and includes) mechanisms that differ substantially from what is currently

practiced” in the corporate world (p. 92).

Benz and Frey acknowledge that democratic public administration is not ideal – it is, in

fact, known to be inefficient, and suffers from scandals, as well as distortions due to rent-seeking

activities. They believe that each can learn from the other. Approaching the topic from the


economic analysis of political institutions, they propose that four cornerstones of public

governance can inform corporate governance. First, realignment of managers’ compensation

with the prevalent practice in the public sector, i.e. fixed compensation as opposed to

remuneration based on pay-for-performance. Second, consideration of the advantages separation

of powers may have in application to the private sector. Third, the potential advantage to the

corporate arena through application of rules of succession followed in the political sphere.

Fourth, by relying on “institutionalized competition in core areas of the firm” (p. 93).

Fixed compensation is the norm in public governance because it is intended to militate

against an environment conducive to self-interested manipulation of evaluation criteria by public

officials, politicians and judges. Defining performance in the public sector is not easy, and often

not measurable. During the 1990s, private sector managers were afforded pay-for-performance

opportunities, with corresponding incentives and opportunities for criteria manipulation in order

to enhance their pay packages. Managers were thus induced to focus on ways in which to

influence their variable income, finding it easier and less demanding than seeking higher income

through increased efforts. Evidence of distortion and falsification of figures is plentiful.

Accumulation of power and uncontrolled discretion by individuals in leading positions

has long been an issue in both public and private institutions. In the democratic political arena

the most effective means of restricting this power is through the separation of powers. It is

common practice in business and industry for the chief executive officer to be chairperson of the

board, and thus the chair of shareholders meetings, simultaneously. Recently enacted legislation,

e.g. the Sarbanes-Oxley Act, requires clear separation of executive and auditing functions of the

corporation. “This is an area where corporate governance has co-opted institutions applied in

public governance, but only after having incurred huge costs” (p.95). Benz and Frey suggest that


the shareholder voting process of corporations should be revamped to more closely reflect the

political process. Elections resulting in free choice among real options by those whose interests

are being represented would be an aspiration.

Next, Benz and Frey address the issue of rules of succession. The posit that restricted

terms of office, restrictions on reelection, and position rotation might have practical application

relative to top executives. While term limits can have dysfunctional effects, they believe that

there are advantages. First, is the renewal of incentive to develop a long-term business view.

Second, it leads to increased job security and permits more investment in firm-specific human

capital that, in turn, benefits shareholders. Third, is the incentive it provides to carefully select a

top manager.

Institutionalized competition translated to the corporate world includes voting rights, the

competitive election process, and voting rules. Unlike the democratic political process,

shareholder voting can be affected by privileged shares and/or nonvoting shares. These

mechanisms are implemented in attempts to forestall hostile takeover. The competitive election

process goes to the concept of providing real choice to the parties in interest. Voting rules

touches on consideration of new voting mechanisms such as voting by veto.

Benz and Frey wrap up their treatise by discussing differences from other corporate

governance theories. The dominant approach, agency theory, is control-based, which they state is

similar to public governance approach in that they both place emphasis on controlling

managerial self-interested behavior. Concrete mechanisms of the two views, however, differ

substantially. “The distinctive feature of the public governance perspective may be summarized

in one fundamental question: ‘Who has the actual rights to decide over what?’” (p. 100).


Ownership and funding are often cited as key factors in differentiating between public

and private sectors (Solomon, 1986). User fees sometimes finance some organizations, however,

and there are private companies that rely primarily on government contracts. While management

functions in both sectors are conceptually similar, “effectiveness depends on matching the

internal organizational structure to the demands of the task environment” (p. 247). In addition to

funding sources and ownership, other differences between the two impacting structure and

practices include political and legal environments, and criteria for accountability and control.

Sources of funding and degree of market exposure are among the most frequently cited

environmental factors that differentially affect organizations in the two sectors.

With profitability as the ultimate criterion for success, private sector managers operate in

a competitive and dynamic marketplace. Responsiveness to market and customer demands is

expected, as is the implementation of organizational policies that foster rational economic action

and efficiency. The private sector is profit-driven. Public sector managers must maintain

constituencies, deal with multiple goals, and must navigate through an appropriation process

susceptible to political influences to obtain funding. The culture of the public environment is one

of conflicting values, with often competing objectives, and not conducive to productivity and

efficiency. There is a constant tension between accountability and efficiency and the

expectations on public managers to meet demands of public responsiveness.

“In the private sector, the extent to which certain actions will be encouraged and

rewarded is generally determined by the degree to which they help meet the goals of increased

efficiency. Conversely, the public sector, facing multiple and competing goals and additional

constraints, might assign a lower priority to policies that reward efficiency, yielding more to the

vagaries of the political climate” (p. 248). In evaluating job satisfaction among top managers in


both sectors, Solomon found that the largest differences between sectors occurred in the area of

reward systems. Satisfaction with performance contingent rewards was significantly higher in the

private sector. Public sector service organizations expressed greatest dissatisfaction with rewards

systems.

A recent study on perceptions of flexibility and red tape in personnel practices found that

the non-profit sector aligned more closely with the private sector than the public sector in their

responses (Feeney & Rainey, 2009). This study involved respondents in both Georgia and

Illinois. In their discussion and conclusion Feeney and Rainey reveal that there were differences

in perception between the two states as well, suggesting that union presence in Illinois and recent

personnel reforms in Georgia may have influenced perceptions. They suggest such factors should

be considered in future studies. These differences in administrative culture might provide further

evidence pointing to the impact of separation of powers in public governance.

Another feature of public administration borne out of the separation of powers involves

the use of private litigation to influence statutory policy (Farhang, 2007, Fahrang, 2008). As a

means of ensuring longevity of policies, congress has adopted a practice of inserting litigation

provisions into the legislation that it enacts. This is particularly the case when Congress desires

to ensure that what it intended at policy initiation is not subverted at the agency level, to forestall

adverse judicial interpretation, and to safeguard against future legislative action by a Congress

comprised of members with political views that compete with those in place at the time of

enactment. The purpose is to utilize the energies and resource of private actors to control agency

policy-making. “The oversight literature concerns the mobilization of private resources to

control, for example, the Environmental Projection (sic) Agency and the Department of Labor,

not to directly control Chevron’s emissions or Wal-Mart’s labor practices by suing them. The


oversight literature is about ‘how to regulate the regulators,’ and ‘not how to regulate society’”

(Farhang, 2007, p. 3). Through passage of the Civil Rights Amendment of 1991, Congress

utilized economic incentives as a policy tool with the express purpose of mobilizing private

enforcers. It sought to correct under-enforcement of civil rights laws. Civil rights interest groups

and their Congressional allies “were spurred to action by Supreme Court interpretations of Title

VII that did not comport with their preferences” (p. 36). The ensuing rise in litigation relating to

Title VII reflects the impact of how a Congressional majority dealt with an ideological conflict

with the Supreme Court.

“Ideological conflict between Congress and the president, most simply measured as

divided government, is a statistically significant, consistent, and substantively powerful predictor

of congressional enactment of incentives to mobilize private litigants. These findings link long-

run historical patterns of divided government and legislative-executive polarization, which

increased in frequency and intensity starting in the late 1960s, with the coincident growth of the

role of litigation and courts in the implementation and elaboration of federal statutory policy.

Higher levels of risk of electoral losses by the majority party, Democratic control of Congress,

and demand by issue-oriented interest groups are also significant predictors of congressional

enactment of such incentives” (Fahrang, 2008, p. 821).

Farhang’s 2008 report covers the years 1887 to 2004. Suits initiated by interest groups

represented only two percent of total litigation, and litigation to enjoin or revise policy decisions

comprised five percent of cases filed from 1960 to 2004. Over ninety percent of private litigation

enforcing statutes involved a decentralized array of private plaintiffs and their private attorneys

in pursuit of private interests.


Bureaucratic implementation of agency policy typically empowers the administrator with

both articulation and enforcement of rules. Private enforcement as enabled through litigation

divides the two powers. Courts articulate the rules, and private plaintiffs and their attorneys

execute rule enforcement functions. Other potential causes for enactment of private legislative

enforcement include: the rent-seeking lawyer hypothesis, the issue group hypothesis, the budget

constraint hypothesis, and party alignment hypothesis.

Private enforcement as contemplated in this study results in even greater inefficiencies

and has significant impact on agency management. It “produce(s) inconsistency and uncertainty

…mobilize(s) less policy expertise … (is) needlessly adversarial, subverting cooperation and

voluntary compliance … (is) extremely costly; and … painfully slow and cumbersome”

(Fahrang, 2008). Federal regulation including fee shifts and damages enhancement span the

spectrum of policy domain. A breakdown of the distribution of enhancements is as follows:

Property – predominantly intellectual (12%), Civil Rights (9%), Consumer (9%), Labor (9%),

Public Health and Safety (8%), Banking (6%), Environmental (6%), Interstate Commerce (6%),

Security and Commodities Exchange (6%), Housing (5%), Antitrust (4%), Bankruptcy (2%),

Communications (2%), Elections (2%), Other (14%).

Subsequent to Congress’ enactment of private enforcement legislation, the rate of federal

statutory litigation filed by private parties at the end of the 1960s rose sharply. “This growth in

private statutory enforcement litigation far outstripped the growth in other types of litigation in

the federal system, such as tort and contract claims brought under diversity jurisdiction” (p.

836). It has grown from a relatively minor share of the federal civil docket to the dominant one.

Compared with 18% in 1965, they averaged more than 163,000 per year during the five-year

period preceding this study, accounting for an average of 63% of the federal civil docket.


As a prelude to his discussion of the differences between public and private management,

Graham Allison constructed a table of the functions of general management (Allison, (1979)

2004). The table is divided into three parts: strategy, managing internal components, and

managing external constituencies. Strategy includes establishing objectives and priorities, and

devising operational plans to achieve those objectives. Internal components consist of organizing

and staffing, directing personnel and personnel management systems, and controlling

performance. External constituencies reflect dealings with: other units within the organization;

independent organizations, i.e. agencies from other branches, interest groups, and private

enterprises; and the press and public.

“While there is a level of generality at which management is management, whether

public or private, functions that bear identical labels take on rather different meaning in public

and private settings” (p. 399). In addressing the differences, Allison looks to individuals who

have been general managers in both sectors, and who are generally unanimous in their

conclusions. Included are the reflections of George Schultz, Donald Rumsfeld, Michael

Blumenthal, Roy Ash, Lyman Hamilton, and George Romney. All deem that management differs

between the two sectors, and that it is more difficult in the public sector.

Allison’s summary of his literature review lists the main points of consensus regarding

the attributes of a public organization, relative to those of a private organization. Four topics are

addressed under the heading of environmental factors: degree of market exposure, legal, formal

constraints, and political influences. Less market exposure negatively impacts incentive cost

reduction, effective performance, and operating efficiency. It also results in lower allocational

efficiency, which can be affected by consumer preferences, and issues concerning proportioning

supply to demand, for example. Additionally, less market exposure reduces availability of


market indicators and information. Legal and formal constraints mean less autonomy of

managers in making decisions due to constraints on procedures and spheres of operation. The

tendency to promulgate formal specifications and controls is greater. There are more external

sources of formal influences, greater fragmentation of those sources. Political influences include

diverse and intense external informal influences such as bargaining, public opinion, and interest

group reaction. There is a greater need for constituency support.

The first topic listed under organization-environment transactions is coerciveness. As

previously discussed, government has unique sanctions and coercive power. Second is breadth of

impact. Government has broader impact and a wider scope of concern, i.e. public interest.

Actions of public administrators have greater symbolic significance. Third, there is greater public

scrutiny of public officials and their actions. Fourth, public expectations are greater that public

officials will act with more fairness, responsiveness, accountability and honesty.

With regard to internal structures and processes, public managers face greater multiplicity

and diversity of objectives and criteria. These are more likely to be vague and intangible than in

the private sector, and there is a greater tendency for conflicting goals in the public sector. Public

administrators have less decision-making autonomy and flexibility in personnel matters.

Authority over subordinates and lower levels is weaker and more fragmented. There is a higher

degree of reluctance to delegate, more levels of review, and greater use of formal regulations

than in private business and industry. Comparison of organizational performance indicates

greater cautiousness, rigidity, and less innovativeness on the part of the public administrator. Due

to elections and political appointments, there is more frequent turnover of top leaders, and

greater disruption of plan implementation. Public managers experience greater difficulty in

devising incentives for effective and efficient performance, and public employees place lower


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value on pecuniary incentives. Finally, Allison cites results of individual empirical studies that

indicate public employees exhibit personal characteristics with a variety of traits and needs.

These include the need on the part of government managers for higher dominance and flexibility,

or a need for higher achievement. Work satisfaction and organization commitment are also lower

than in the public sector.

Allison offers, “public and private management are at least as different as they are

similar, and that the differences are more important than the similarities” (p. 410). In his

concluding remarks he offers six postulates. One, it is right to demand efficient performance in

government, and the perception that performance in the public lags private business is correct.

The notion that private management practices and skills can produce significant improvements if

directly transferred to the public sector is wrong. Two, substantial improvement to public

management will come through recognition of and consciousness about the public management

function. Three, private management rules of thumb, such as the 80/20 rule do not have wide

application in the public sector. Four, accounting functions are tied to operational tasks. Some

accounting rules may be transferrable directly to public sector problems, however, accounting

categories, rules, and measures yet to be imagined can be created by dedicated attention to

specific management functions. Five, it is possible to learn from experience. Six, development of

the field of public management should begin with problems faced by public managers.


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Works Cited

Allison, G. T. ((1979) 2004). Public and private management: are they findamentally alike in all

unimportant respects? In J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public

Administration (Fifth ed., pp. 396-413). Redmond, CA: Thomson Wadsworth.

Benz, M., & Frey, B. S. (2007). Corporate governance: whata can we learn from public

governance? Academy of management review , 32 (1), 92-104.

Fahrang, S. (2008). Public regulation and private lawsuits in the American separation of powers

system. American journal of political science , 52 (4), 821-839.

Farhang, S. (2007, Sep. 14). Congressional mobilization of private litigants: evidence from the

civil rights act of 1991. JSP/Center for the Study of Law and Society Faculty Working

Papers , 44.

Feeney, M. K., & Rainey, H. G. (2009). Personnel flexibility and red tape in public and nonprofit

organizations: distinctions due to institutional and political accountability. Journal of

pubic administration research , 20, 801-826.

Rosenbloom, D. H. ((1983) 2004). Public administrative theory and the separation of powers. In

J. M. Shafritz, A. C. Hyde, & S. J. Parkes, Classics of public administration (Fifth ed., pp.

446-457). Belmont, CA: Thomson Wadswoorth.

Solomon, E. E. (1986). Private and public sector managers: an empirical investigation of job

characteristics and organizational climate. Journal of applied psychology , 71 (2), 247-

259.

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