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Interview of Luc Juillet and James Lahey, Canadian experts in public sector reform

Could give us the experience from Canada on Public Administration Reforms and what kind of lessons can be drawn out of it?

Luc Juillet: Public administration reform is a broad term and so it is related to many different things. For example over the last ten years we have reformed the staffing and human resources regime and this was not crisis related. In terms of large-scale changes induced essentially, by fiscal considerations, Canada had a major experience in the mid 1990’s, and I think that it is still the dominant experience. We are also currently going through a fiscal adjustment process, but on a smaller scale; the government hopes that by 2015-16 it will be able to post a balanced budget or probably a surplus. Overall, the experience of the 1990s was the most prevalent one, in part because it came at a point where since the 1970s and 1980s we had been increasingly concerned with recurrent deficits- we had 28 straight years of deficits. We were up to about a debt to GDP ratio of 65%, and just servicing the debt took annually about 1/3 of the federal budget. Therefore, there was a bit of a concern. In the mid 1990s the sense of urgency did develop, it was not a crisis in the same way that you talk about crisis in Greece but still the international press begun to talk about Canada as a potential next victim of a currency crisis, similar to the Peso Crisis unfolding at the time. Thus, it was not a crisis in the sense of what Greece is going through now but there was a sense that we were coming to the brink in some ways and the government proceeded to implement an ambitious and for the first time quite successful project of fiscal adjustment within 3 years. There were some previous attempts that had failed, however some of the things that were done in the past, although unsuccessful at the time, actually yielded benefits over a longer-term period, in terms of changes to the tax system, benefits etc. From 1994 to 1997-1998, we essentially eliminated the deficit, which was about 4 to 5% of GDP and so in historical terms for Canada this was a major success, but also in terms of international standards from what we know from major fiscal adjustments -IMF studies usually talk about 1.8% of GDP projected adjustments, which however only tend to deliver 0.3% of GDP in practice. To sum up, I think that we can say that both from a Canadian historical perspective and in terms of international context, this was a landmark change.

Was this fiscal consolidation programme accompanied by substantial public sector reforms, either in the wider public administration or related more specifically to the financial administration, the tax collection mechanism, etc?

Luc Juillet: There were a number of substantial administrative reforms that were done to rectify the fiscal situation, but there were also other types of changes. Canada as you know is a federal system and the federal level is not responsible for health care delivery or the delivery of most social services like welfare/ social assistance. So some of the major programmes in these areas are not the responsibility of the federal government, but the latter still contributes financially to them through transfers to the provincial level of government. So part of the cuts came from cuts to the transfers to the other order of government. However, for the federal administration, there still remained very substantial changes.

Going back to your question, one thing that characterized the 1990s’ effort is the focus on a more strategic and structural approach. It is an attempt, an effort to implement the cuts in a more strategic manner. So, one of the key things in that effort in the 1990s was what we called program review. More specifically the aim was to force all departments to review all of their spending based on a set of questions, such as for example ‘is this programme still in the public interest?”, “if it is, is it necessary to be done by the government as opposed to the private sector or the non-profit sector?”, “If it is, is the federal government best positioned to do this compared to other levels of government?” and “ if it is, are we doing this as efficiently as we could?”. Even if you answer yes to all the aforementioned, there still remained the question if we can afford it.

It forced a more systematic review of programmes than we had done in the past. Now, I can say that some departments did this better, more extensively than others did. I could not say that this programme review was a perfectly rational exercise of realignment of state priorities and organizations, but it was nevertheless a significant dimension of the process. However, other factors were also important. More precisely, one thing that was also an issue in the previous failed attempts of the 1980s was the lack of political will at the centre -i.e. ministers found ways to overcome demands for budget restrictions, either by negotiating directly with the prime minister or with other colleagues. Thus, we had a push for fiscal constraints but at the same time we lacked political will and public opinion was always difficult to manage in this context. In the 1990s I think that it went well partly because of the sense of urgency. At this time the government had stronger political leadership and the prime minister and the finance minister- who in normal times were the two major rivals of Canadian politics- really worked together to try to prohibit anybody from going around the system and shirking their responsibilities. Therefore, that was a key feature, a greater political will both internally, in terms of making sure that the system reacts to these requests for fiscal consolidation but and also in terms of leadership, to work with public opinion.

James Lahey: As an example of the idea of a successful structural reform, the best case was in our Department of Transport. Before the reforms this was a very large department (national railway, air navigation, ports, and airports) of about 25.000 employees. The reform –which had been planned perhaps a decade before, but there had not been an opportunity to implement it- in this department was meant to transfer control of airports, ports, etc. to municipal corporations. Also, they semi-privatized the air navigation system, they privatized the national railway and so they ended up with 5.000 employees, whose jobs was to see to the regulations and the enforcement of safety for air, railways, tracking etc. So this was a textbook reform example, which led to permanent savings in federal spending and in fact it had benefits for the population. The railway for example, went from being the less efficient railway in North America to being the most efficient railway in private hands. Also, the airports which were not very pleasant places, were replaced in nearly every city by modern airports based on borrowing by these municipal corporations. The federal government would never had done that because it does not want to commit to this kind of borrowing. So, the transportation department was a wonderful example; there were many departments which did not have such plans and had less well planned cuts and in some cases did things that had to be reversed later. An example of cutting too much was internal controls of financial transactions or auditing and so on. So, these cuts which were easy because did not affect the public directly, were at least partially reversed because there were too deep.

Could you mention two or three key features or major lessons that you learned, that you think are essential for every major public sector reform in order to be successful?

James Lahey: The first key characteristic is the solidarity of the political leadership. More precisely, in the past when there were attempts to made reductions, if ministers didn’t like what the finance minister was trying to do, they would go to the prime minister and would try to exclude themselves from the programme and exceptions of this kind would be multiplied. In the 1990s reform there was complete solidarity; ministers who tried to exempt themselves from the cuts, were told by the prime minister that they should get in line or the cuts would be twice as large. Thus, there was absolutely no bending at the centre of political leadership, which I think was a fundamental feature.

A second thing was that essential, was that everything was cut, i.e. transfers to provinces, some transfers to individuals, certainly all departments and so on. I would like to mention a story of a human resources department -some years before they had tried to close one office and then there was a large protest and the decision was reversed. However, during the reforms in the 1990s they closed one hundred offices. By this I mean, that when everything is being cut those who complain have no sympathy and you can justify in a way what you are doing in terms of “fairness” or in other words a general sharing of pain.

A third lesson is that it is a good idea to have luck! We had a lot of luck. By the mid and late 1990s the US economy was booming and continued booming for a decade; just before that we had signed a free trade agreement. Thus, Canada prospered along with the United States. Due to this ‘happy economic situation’, many of the cuts for example, to transfers to the provinces, were restored or even increased the following five to ten years.  So, make sure that you have also some good luck.

Luc Juillet: I would like to add something else on the lessons. In addition to the role of the political leadership that we already highlighted, it is important to note that the cuts were centrally driven but relied to a great extent on departmental initiatives. The departments were asked to come up with different scenarios, and there were no numerical targets set at first. Also, they didn’t bring in as they had done in the past some high level private sector consultants and business leaders to tell the public sector how to do things, but they actually turned towards the bureaucracy and told them to come up with scenarios: ‘What we should drop, what we should do better, how we could re-organize things’. When we talk for example about some major changes in transport we know that some of these had been proposed, analyzed and studied by the department of Transport years before the cuts took place. Therefore, in a way what the programme review exercise created was in part the political conditions that allowed the public servants to come forward with well-developed plans. I believe that this fact also improved the capacity to deliver better results. I would argue that this was a good feature compared to the failed attempts we had undergone in the past.

How do you earn the support of public employees for reforms that affect them negatively? For example through lays offs?

James Lahey: Just to be clear of, many of the 25.000 people that were withdrawn from the Department of Transport, didn’t lose their jobs, but they were transferred to another employer. Some did lose their jobs, but more generally, I think that we should distinguish between public service leaders and the employees more generally. When I say public service leaders, I mean the executives within the public service. I think there was a question about professionalism and these executives were engaged and exercised their leadership professionally. For employees generally I don’t think that reductions were supported, nobody liked it; on the other the citizens were not necessarily entirely unhappy, in the sense that the government’s finances were coming under control, so there was some support there. But fundamentally I think that the acceptance on the part of the public servants was encouraged by a very generous and fair support system for separation. There were various forms of encouragement for people to leave. For example, there was a suspension of some of the rules for pensions, so you could leave earlier without a penalty and that encouraged some people to go. In other cases, people were paid several months or a year’s salary as a sort of a transitional fund and they were given some money for counseling or for training. There was also the possibility of trading, in other words, people who wanted to leave but whose positions were not being eliminated, were able to trade with people whose positions were eliminated, but did not want to leave. I think that there was an understanding that this is reasonable and at the end of the day people were accepting.

Luc Juillet: In the end, we did eliminate some 45.000 positions, which was about 20% of the core public service (if you include the police and army these were probably 55.000). So in the end, it is a dramatic experience, but you can mitigate the consequences if the system provides support. I would say that you have to try to communicate as much as possible and to reassure people that things were done in a manner that is fair, transparent and quick. You have to be very clear about how you will implement the changes, deal with the affected employees, etc.  Good communication, I would say, is essential and its importance can hardly be overestimated, recognizing of course that people will be distressed and there are limits to how much you can do to alleviate that.

You both talked about the role of political leadership. More specifically I would like to ask about the opposition parties – what about their position, do you need a cooperating opposition to proceed with such reforms? What about transparency and the development, through cooperation of the political system of a national plan, which we are lacking here in Greece.

James Lahey: Within the Liberal party which was the governing party, the level of discipline was very high, there was support for the prime minister, who had won the majority for the first time after ten years, was in office for two years and went on to win two other elections afterwards. I don’t think that there was a significant degree of dissent among them and they had the majority. As for the opposition, the election of 1993 completely changed our political landscape because the traditional alternate party- the conservative party- was essentially replaced by a short of a reformist party from western Canada and a separatist party from Quebec. Actually, the separatist party had the largest number of seats, so they were the official opposition. In general, they did not support the reforms or the cuts, but the reformist party was supportive on principle, because that is actually what they had on their agenda. So, I would say, the significant majority of the members of the parliament were supportive of the reforms in principle. This doesn’t mean that there were no complaints about the details, in particular the cuts to transfers to the provinces were really controversial, because it downloaded the problem of cutting spending to the provinces and then there was an issue how this would affect things like education and health and that wasn’t popular. So provincial premiers were opposed to the federal government’s position. However, very quickly, they changed their view and they started to agree with the necessity of the reforms and adopting the idea.

Luc Juillet: On the issue of public opinion, I think there was a very significant change of public opinion on the issue of fiscal management through the years. In the past politicians were concerned about the effects of cuts on their popularity, but we shifted now I think to the opposite. Now it is dangerous for a party to be seen as fiscally careless and even the most left wing party over the last decade has been careful to try to portray a picture of sound fiscal management.

James Lahey: Although they tend to argue that this can be achieved by increases in corporate taxes, more than by cutting expenditures.

Luc Juillet: So the idea of sound fiscal management is now part of the political discourse in a way that was not there before. I think this is one reason why provinces went to that direction also, despite their initial complaints…

James Lahey: I think one reason for the change of mind of the provinces was also the fact that their share of tax revenues that had to be spent on paying their debt, was becoming unsustainable. It was pretty clear that if they didn’t do something they would be transferring more and more of their budget to paying debt and less and less to providing services (also the interest rates were really high at the time).

What do you think about the evaluation process and how important you think they are in the reform process?

James Lahey: In one form or another, programme evaluation has been part of that regular lexicon of Canadian public service practice for more than 30 years. In terms of evidence, I would say that evaluation of programmes has had a mixed success; I can think of at least one case where a series of very careful evaluations did contribute to shaping the public policy in the mid-1990s. On the other hand, evaluation of programmes tend to be inconclusive, because there is always something good to say -for example, well there is some progress but it is too soon to conclude and therefore more research has to be done. More specifically, evaluation of programmes does not tend to offer a firm basis for action in general. There is more emphasis on evaluation now, but I personally do not believe that it has achieved a truly functionally effective ground.

How do you think it should be conducted to be truly effective?

James Lahey: It has to be done outside the government. Due to the fact that naturally there is too much of a conflict of interest when it is done inside the government.

Luc Juillet: One thing that the government did in 2007, I think that is one of the legacies of the programme review exercises, was to ask all departments to review all government programmes over a 4-year cycle. The idea was that these strategic reviews can be an ongoing way of reallocating money from the lower priority, least performing programmes, to new priorities and more effective programmes. The idea was that 5% of reallocation would occur in that 4-year cycle as all departments went through this. But then the financial crisis arrived… and the effort was overtaken by events…while being entirely skeptical as Jim said about the possibilities of these exercises… I think that these kinds of processes may be difficult and unpleasant, but we have to try to instill this idea that you have to rethink what you are doing, be more critical and review what you are doing…This is an issue not just in Canada, but it is a well-known problem of public administration, that whatever you did in the past often is not re-examined and a lot of focus is on what you do on top, in addition. So, all public services have tried to find ways to actually examine better their overall activities; with very mixed success. However, I will argue that despite the mixed success, these kinds of programme evaluations, are necessary.

What about corruption in public administration? How do we deal with it?

James Lahey: In Canada corruption exists but it is not a huge problem. I would say that first, you have to be very explicit, in the statement of values, the expectations from public servants, for example that they should act with propriety, independence, neutrality. Thus, you have to have codes of conduct. Secondly, it is wise to have a system that permits, encourages and facilitates people to denounce abuses. We do have this kind of system but I don’t know how effective it is. A third thing is that you have to be prepared to undertake criminal prosecution in cases of corruption and we have had a number of successful prosecutions in this respect. Also, another thing which is difficult to be precise about, is the fact that if you expect people to be honest you have to pay them fairly. I do think that in some countries people who work in public services are paid minimum amounts and yet they are exposed to huge temptations and often succumb to them. I wouldn’t say that public service employees in Canada are exceptionally well paid but they are decently paid.

Luc Juillet: One thing that I would like to add to the corruption issue more generally and for a country like Canada, there is an ongoing debate/tension between the role of values and the role of systems and institutions on dealing with corruption. You surely need both, but in the end you cannot really win the war without people changing their values. You do need robust institutions, good laws, you need to prosecute people, but there has to be also a public administration effort to clarify what are the underpinning values of the public administration and an effort to actually communicate these with employees as well. That is more broadly for ethics. Also you have to implement the rules consistently and transparently in order to have this change in values.

In Canada, we did elaborate over the last years a code of values and ethics for public servants, which is part of their employment condition. There are efforts to communicate that and engage people around values and the role of leadership in the public sector I think is important in this regard. However, in Canada we have also introduced values, codes of ethics and conflicts of interest rules that are legislated for public office holders like ministers, or the highest levels of the public service, for presidents of agencies etc. There is also a new code for parliamentarians and both of these codes are administered by an independent ethics office which is accountable to parliament. It has the power to investigate allegations and to publicly report on them. Thus we have not neglected this other part of the system.

James Lahey: There are also other practices, for example on spending money, there is a separation of duties between the person who undertakes to commit the expenditure and the person who certifies that the service was received and the person who authorizes that the cheque can be issue and the bill can be paid, so there are at least three people doing these three things and there are also auditors to check that any potential collusion between these people does not take place.

We have talked about some topics which are very important for Greece, like evaluation, corruption and political leadership; I understand that you may lack in-depth knowledge of the Greek situation, but could you offer your opinion about the major challenges of the ongoing reform programme in Greece?   

Luc Juillet: We are just 4 days here and I don’t feel able to go very far on this, but I am struck by the scale of the agenda, it seems that you are trying to redefine the state and how it functions in a large number of sectors and you are doing it under such an incredible time pressure. Studies in the private sector argue that 70% of significant reforms fail under all conditions and you can imagine what will happen under extremely difficult conditions like these…That is the one thing that really strikes you, in other words the magnitude of the task and that you have to do this under outside pressure.

Is austerity compatible with a substantial structural reform programme in the public sector? Does the pressure for short-term fiscal consolidation targets, create problems in terms of more structural reforms?

James Lahey: I once heard an experienced, senior person say that there are two ways to cut a budget: one is the scientific, analytical way and the other is the arbitrary way. Then he said, the first one is the better way but it never happens, so in the end it is the second one that really works. I think that austerity is a necessary condition for the reform; it is true that in the short-term it will be messy and even counterproductive in some respects but without austerity I do not know whether reforms would be possible at all. My hope would be that in a second round, so to speak, there would be time to cope with what remains and then the focus would be on long term processes.

Luc Juillet: I would agree obviously that there is a sense of urgency and in this case external constraint. You know in most organizations it takes something like that to commit to very significant changes. My concern is that the issue here is how to develop and restructure in a way that will assure the people that they will have the public service to meet their needs for the future. In that sense, large-scale changes must come with some strategic thinking about the kind of state you need and want for the future and this can’t be limited to just numerical cuts. The way that I see it from outside is that it has to be done with many external demands under what is probably an unreasonable time frame, given the scale of the reform. The time frame seems to be very short and this would be one of my worries. Also, in our case when we did the reforms we benefited a lot from the good economic conditions, while you have to undertake the reforms in opposite conditions.

James Lahey: The scale of simultaneous reforms that seem to be intended probably exceeds anyone’s capacity and in some sense it will probably not be successful. The question is whether enough can succeed…Another thing is the punitive tone that I get from the Troikas’ demands. I am not sure if the punitive tone is really a smart strategy. It seems to be that the reforms are externally imposed rather than be internally accepted. To some degree by adopting a punitive tone, the Troika allows itself to be demonized more than perhaps it ought to be, because the objective problem is unavoidable and the Troika did not create it -this situation does not work in favour of real change.

Luc Juillet: Another angle of this is that if communication is an essential part of this, both internally with employees and externally, it is really hard to convince them, if there is a lack of positive vision; if there is the sense that we have to do this because the Troika demands it. I don’t know much about Greek politics but I would imagine that this is a challenge.

Let us finish with a part of the Greek reform, which has been very controversial. This is a large privatization agenda, which however has not really progressed. In your view what are the necessary conditions for a successful privatization programme?

James Lahey: Generally, I think that privatization programmes have been successful in Canada because they have reformed a more or less frozen leadership and rigid labor contracts and practices that were entrenched in the public sector. These could be overturned only in the private sector. It was painful but it could be done. For example, what happened with our national railway is they had contracts with the workers that said, if we don’t need you any more we still pay you till you die, so one of the first things that that the private company did was insisting on ending all those contracts and then there was a strike and there was a big problem, but there was a judge appointed to determine what the contract should be and he agreed that this aspect of the contact had to go… then there were significant reductions, perhaps up to one-third of the labor force was laid off over a period of 5-6 years and that was painful for sure, but these things could never happen in the public sector. Now, I wouldn’t say that Canada has been super aggressive in privatization, like for example the UK. We have been very selective in our privatizations, so is very difficult to say which conditions are suitable in order to privatize effectively for the Greek case.

Luc Juillet: I do hope that as the government tries to face the short-term demands they don’t lose sight of the more fundamental, systemic long-term reform agenda. To talk about the public service for example, it is one thing to focus on how you select those who will go from the public sector, but there is also a lot of work that could be done, changing some of the structural and institutional features of the whole public service system. It is hard to combine those two agendas because of the reasons that we talked before. However it is important, in order to make sure that Greece emerges from these reforms with a stronger public service, which is able to deliver for the kinds of problems that all states face.

Thank you.