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New Public Management and Health Sector Reforms

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Published: 29th Aug 2017 in Economics

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Q. What is New Public Management? Explain the concept and application in relation to health sector reforms across developed and developing countries.

1. Introduction

In the contemporary era, neo-liberal policies are given weightage attributing to their stance of limiting the work of government in the economy and its ability to introduce efficiency and effectiveness. We now witness an emerging trend of adopting neoliberal policies. The New Public Management is, therefore based on the neo-liberal views and attempts to introduce private sector efficiency in the public sector of a particular country. The use of New Public Management (NPM) has led to use of tools like decentralization, privatization, contractualism, total quality management, performance related pay etc. While adoption of NPM seems an attractive option for various economies, its applicability and success in developing and developed nations is highly debated upon. Popular examples reveal that the NPM techniques are likely to fail in developing nations because they do not have the preconditions required to harbor NPM. However, the success of NPM techniques purely depends upon the environment within which it is implemented and on the compatibility of the techniques with the country’s norms and values. This essay therefore aims to assess the applicability and success of NPM approaches in the case of developing and developed countries. The essay will begin with literature review that will emphasize on what paved the way towards NPM, definitional aspects of NPM and implementation of NPM as a steady reform process. The essay will then illustrate the case studies of Norway and Chile and analyze the degree to which NPM was successful in the two countries.

2. Literature Review

2.1 Road to New Public Management

For long now, the public sector setup has been under pressure to bring about efficiency by adopting more market oriented and private sector practices (Dunleavy & Hood, 1994). This has been argued to be due to multiple factors such as economic and fiscal dilemmas that brought about the need for state’s increased role in the economy (Ferlie, et al., 1996). The public sector crisis in the developed economies led to the search for new ways of organizing the public services and hence, redefining the role of the state to encourage competition and market oriented approaches. State’s indulgence in market type approaches in order to treat the problematic public sector led to the promotion of marketization, that was ought to be more efficient and effective as it tend to keep in mind needs of the individuals and consumers.

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The shift towards New Public Management (NPM) started in 1970s and 1980s in UK, under Margaret Thatcher’s regime when she called for the readjustment of the iron industry, and in US municipal government who were agonized at the hands of economic recession and tax revolts. NPM practices were next adopted by Australia and New Zealand, which brought NPM into limelight and brought them on the agenda of OECD countries. It was not until then, theorists started to identify the common characteristics of what is known as “New Public Management” today (Dunsire, 1995).

2.2 Defining New Public Management

Advocates of the traditional bureaucratic system declared the term “New Public Management” as a misnomer at its very emergence. There have been claims that what is characterized to be New Public Management is practiced in the public sector since quite long now and thus, there is nothing “new” in the practice. Moreover, it is also argued that NPM tends to target the core values of the public sector an, is therefore little about public management and more of an attempt to wipe out public administration as a subject in social sciences (Farazmand, 2000).

However, despite heavy criticism and attempts to minimize its use in the field of public administration by traditional bureaucrats, there is consensus among scholars that NPM tends to dominate majority of contemporary era public settings. New Public Management, in itself, is a reform process, undertaken at the administrative level where structural, organizational and managerial changes are targeted in the public sector. As per Pillott (2011), it is a bunch of “management appraoches and techniques” and “a vission, an ideology”. Thus, NPM basically is a set of mangerial actions generated from the private sector and applied in the public sector in order to yield similar level of effciency and effectiveness. Different scholars tend to provide different ideas for conceptualising NPM. Hood (1991) however, brings them under a common banner by summarising the key elements of NPM under 7 main characteristics. He claims that NPM is inclusive of; entrepreneurial management rather than traditional bureacracy, as highlighted by Clarke & Newman (1993), benchmarked standards and performance measures as highlighted by Oshborne, et al. (1995), pays attention to output control as highlighted by Boyne (1999), calls for shift towards decentralization as highlighted by Pollitt, et al. (1998), advocates competition in public sector workings, superiority of private sector style of working as highlighted by Wilcox & Harrow (1992) and advocates discipline in the allocation of resources as highlighted by Metcalf & Richards (1990). Thus, NPM is inclusive of privatization, decentralization, outsourcing, contractionalism, competitive mechanisms like performance related pay, total quality management etc.

Scholars argue that New Public Management has therefore, emerged in response to the Old Public Management and in order to understand NPM, it is of utmost importance that we fitst understand Old Public Management and its principles. Old Public Management is in line with the ideas of Max Weber’s bureaucratic setup. It emphasises on exante and procedural control and the traditional hierarchial setup where functions are divided among different functional units (Osborne & Gaebler, 1993). While the old public management was based on strict hierarchies and rules, new public management looks into political and accountable management and thus advocates contracts and market superiority. Morover, while old public management used stability and permanence at its very foundation, new public management is based on contracts. Institutionalisation is at the very core of Old Public Management, whereas new public management requires more of strategic management and thus doenst require strict institutionaization (Peters, 1996).

2.3 NPM as a Reform Process

Many scholars shed light upon reform process that has incorporated elements of new public management in the public sector. Advocates have argued that public settings can achieve their goals if flexibility is introduced in the system and public officers are given significant autonomy. This will not only lead to effective management of the functions of the units but also enhance the performance of departments and agencies working together in a contractual capacity. Autonomy will therefore allow them control their resources and use them in the best possible manner as to achieve the required results. Hence, it will enable department to make best use of private sector tools such as contracting, outsourcing, accrual accounting, total quality management, user survey etc. (Osborne & Plastrick, 1997). While the bureaucratic systems are rigid and answer back to orders, decentralization and autonomy will allow creative thinking by pushing the decision making authority down the hierarchy. Thus NPM has been able to promote accountability though encouraging shared missions and systems, by freeing organizations from the control of central agencies and allowing workers to adopt a problem solving approach (Osborne & Plastrick, 1997).

A large number of developing countries are still trying to make use of NPM approaches in the public sector. For e.g. Malaysia has adopted Total Quality Management in their production processes in order to minimize wastage and ensure good quality of products (Fei, 2003). However, the implementation and spread of the NPM process has not be unanimous around the globe. The major differences have been as per the context of the country. While some countries have resisted to NPM attributing to the strong bureaucratic culture, others have just restored their national initiatives under the label of NPM, when in essence old public management is still followed there. Thus, adoption and introduction of NPM is seen as a complex process where the context within which the country is, matters (Christensen & Laegreid, 2006). Adoption of NPM has also differed as per the nature of the countries being developing and developed. While the process was initiated by developed countries at the first place, their public sectors are now stable with accomplished NPM practices for e.g. in the case British health care system. Moreover, developed economies tend to meet the preconditions, such as well function markets and economic development, required for the implementation of NPM principles. However, the implementation in developing countries has been troublesome. It is argued that developing nations are still struggling to stabilize their economies, ensure imposition of rule of law and instill proper bureaucratic structures, that introduction neo-liberal techniques disrupts the entire process and causes instability (Akhtar, 2016). Hughes (1998) argue that implementation of NPM in developing countries may yield opposite results than what is required. While NPM approaches may be adopted to promote greater transparency and eradicate corruption, a greater degree of autonomy to officers may lead to chances of corruption. Similarly, in case of contracting out, absence of appropriate laws and rules can limit the use of contracts as they may not be fulfilled in their true essence. Moreover, it is also claimed that there is not standard model for implementing NPM in totality, across the countries. Developing countries, especially, tend to adopt particular elements of NPM that are best suited and are most beneficial for them. Two popular and evident elements adopted as a part of NPM have been privatization, downsizing. Moreover, corporatization has been an another successful element of NPM for e.g. in the case of African countries where customs and income tax departments have been merged together under the corporatized national revenue authorities, which has brought about internal efficiency in the unit (Chand & Moene, 1999).

2.4 Implementing NPM inspired Reforms

Different schools of thought draw upon various theories in order to explain the adoption and implementation of reforms that are inspired by NPM. Olsen (1992) provides 2 main reasons for the implementation of NPM techniques. He argues that NPM techniques can be adopted by countries as internationally set standards and examples only because they have become a prevailing trend. Such a change will only be based on pressure and will take place as a part of diffusion process. Secondly he suggests that NPM techniques can be implemented because of the dire need to introduce technical efficiency and hence, it would serve as the optimal solution to the large array of problems existent in the very department. A contrary view, however, argues that the NPM techniques adopted must be in line with the national norms and values held by the country’s public sector. Thus, this makes applicability of all the elements of NPM difficult and only a few elements remain relevant considering the situation from country to country. It is argued that if this is not ensured, the changes introduced may be incompatible with the setting and thus would lead to conflicts among stakeholders within the public sector. NPM elements are not in line with the traditional norms and values of the public sector and this may lead to agitation among officers making it difficult to implement the reforms. Thus, it is of utmost importance that reforms are introduced such that they integrate with the existing culture of the public setup (Selznick, 1984).

2.5 NPM in Health Care Sector

A wide variety of literature provides us with insight into how NPM is being incorporated in the health sector or various developed as well as developing economies. However, Cairney (2002) in his study specifies the difficulties in assessing the usefulness of NPM approaches in the health care sector of economies around the globe. He specifies that this can be attributed to lack of data available to carry out the study and as well as the geographical differences that make it difficult to form a standardized analysis. Literature however reveals that health care reform efforts have proved to be little fruitful in African countries. In Ghana, according to Larbi 1998, structural changes have made few alterations to the popular practices. Management has limited autonomy, government doesn’t have the capacity to reach performance targets, and IT systems are obsolete to measure the performance. African health systems do not have enough funds to support the NPM scheme, which makes it difficult to bring about change. Any efficiency gains fail to bridge the gap between resources need and availability. Hence, the budget allocation serves as the only way to ensure whether performance targets can be met or not. This is a popular example of issues face by developing countries when implementing NPM reforms.

3. Case Study: Norway Vs Chile

3.1 NPM and Health Sector Reforms in Norway

Norway being a welfare state and a developed economy has believed in the equal access of services to its people, irrespective of the socio-economic status of the individual and this therefore has been true in case of their health sector as well. The Norwegian health system is structured into 3 levels: national or state level, the 4 health regions and municipalities. While at the state level, Ministry of Health ensure policy making, the health regions and municipalities implement the policies. The major health sector reforms in Norway were undertaken in 2002 and before that the system was just a tax based decentralized version of British NHS. As Selznick (1984) theorises about the context within which reforms are implemented, weak evironmental pressures in Norway made it difficult to implement reforms at the first place. Although, Norway is a developed country, it is a welfare state as well which holds strong central control in order to ensure the welfare of its people. Their Rechsstaat culture and norms were less compatible with the values of NPM.

However, post 1990s when the devolution culture started gaining popularity, reforms within healthcare seemed more inevitable. The Norwegian Healthcare Sector experienced the introduction of Unitary management systems, with quasi markets and performance measurements models through principles of free patient’s choices. Other reforms included, the activity based funding system based on diagnosis and a more comprehensive and transparent quality control system. The most important reform that was inline with NPM was, hospitals being introduced as enterprises, which seemed as a shift towarsd neoliberal and private sector models. Five regional health enterprises were formed which were independent entities with their own boards and managing directors. The main aim in doing so was to devolve managerial processes in order to enhance efficiency to sub-levels in the hospital. Moreover, it aimed to stimulate the flow of information in order to enhance efficiency and ensure financial responsibility is delegated evenly among the health objectives. The structural changes were intended to minimize the impact traditional bureaucratic structure and introduce private sector like management and efficiency.

However, the Ministry of Health was responsible for appointing the board which depicts that in pratice the control remained in the center, as ministry controlled the boards at an arm’s length. Thus, the reforms that aimed to devolve power to the lower levels actually ended up creating a hybrid which included both the elements of devolution as well as centralisation. The central government ensured that the ministry maintains control through the use of article of association, contracts and throguh regular enterprise meetings. In addition to this the allocation of resources in the form of funds was also controlled by the government. A performance monitoring system was implemented that included issuance of task sheets mentioning objectives that were to be fulfilled. Contracts too mentioned targets and objectives for the employees and results were measured using quantitative indicators.

The reforms were implemented at the first place to improve resource utilization and coordination so that easy and equal access to health care can be ensured for norwegian citizens. However, the confussion in division of responsibility only increased the use of resources while leavinf financial problems. While the devolution meant that counties were suppose to be the owners of health care, in practice the enterprises were heavily influenced by the central governement. In this confussion, counties exercised their control in multiple ways. While some practiced management by objectives (a popular element of NPM), others just practiced excessive control over the hospitals. Thus, NPM approach was falling apart in Norwegian Healthcare System and what was required was clearly defined targets and goals for the hospitals and roles for every tier in the system. While changes were made to the structure, no significant change was made to the financing methods. Policy frameworks dictate management procedures of the enterprises, which means that enterprises still work on direction of the central government. The culture of responding to superiors, rather creative approach to problem solving, still maintains. Thus, introductin of NPM techniques and approaches were a myth in Norwegian Healthcare System. This can be referred back to Selznick’s (1984) as well as Christensen & Laegreid’s (2006) theory. The context within which NPM was implemented was resisting the change. Norway being a welfare state had central control in its core foundations. Thus, in such a situation, not the ability to implement the reforms is relevant, rather the environment within which it is implemented and its acceptance are of greater concern.

3.2 NPM and Healthcare Reforms in Chile

Chile being a developing nation in Latin America, was one of the first few country which began its health sector reform at the earliest. Chile has been known fro adopting NPM techniques and incorporating them in their health sector in order to introduce efficiency. Since the health reforms in 1980s ensured decentralization of the services such that 13 regionald and 26 local health service divisions were formed which held administrative responsibility of the health care system. Each of the decentralisaed units were therefore responsible for curative and presventive services. Just like other secotors of economy, health care in Chile also experienced privatization of public health care system and promotion of market oriented privtae health insurance plans that came to be known as ISAPREs (Berman & Bossert, 2000). Although these were privately administered, their funds were still taken out from wage withholdings and employer contributions. Chile reformed its health sector into a dual health care system where citizen had the option to either cover their health expense through National Health Insurance Fund or through private health insurance companies. The national health insurance scheme is funded by the government, through acquiring revenues through taxation. The duality in the health care system has therefore caused private and public health care to have different objectives rather than common goals. While the public insurance scheme focuses on primary services, private insurance schemes focus on secondary and territiary services. Primary services are however, decentralised to municipalities. The duality in the health care system, however, ensured that the low income poor individuals of the country have easy access to health care facilities. Moreover, the public sector not only served as the provider of the health facilities but also ensured that it offers large scale easy access of health facilties to all (Berman & Bossert, 2000). Moreover, Chile’s reforms were a legitimate process which systematically separated that health service provision and regulation, imposed regulation on private health provision, and ensured fund raising to finance the health care scheme. On the other hand, reforms established proper monitoring mechanisms which included inspections by independent agencies, of financial department and quality assurance of the health care units working in Chile.

The reform process in Chile, therefore has not been withouth crtitique. NPM techniques like private health care schemes brought about positive changes in the health results as the infant mortality rate significantly went down in Chile. In addition ot this, there reforms also positively contributed towards improving life expectancy and, nutrition and sanitation. While the NPM techniques seem to improve the efficiency and effectiveness of the services, the reforms were criticised for harbouring inequality (Bruce, n.d.). As the health insurance is funded from wage withholding, poor who did not have enough income could not pay for the secondary and teritiary health services provided by the private sector. Chile being one of the first Latin American country to adopt market oriented approaches in the health sector reforms, provides an example of how health reforms should be adopted. Limited success and agitation against the reforms in Chile can be attributed to its nature of being developing. Chile had undergone military dictatorship where the government struture had not have the opportuity to stabilise. Thus, Chile’s environment and context make it difficult for the NPM techniques to work out beause for NPM techniques require a well functioning market and economic development to be successful. However, Chile’s health sector was succesfully marked by privatization of helth care fields, economic stability and international environement that made neoliberalist reforms inevitable.


Conclusively, we have established the success of NPM techniques in countries depend upon the environement within which they are implement and the degree of resistance they face. It s of utmost importance that the norms and values of the country are compatible with that of the NPM based reform, otherwise reforms are likely to face resistance. For e.g. a country which a centralised economy and a strong bureacratic structure is less likely to accept privatization of central machinery. This has also been explained by Christensen & Laegreid (2006) and Selznick (1984) in their theoretical frameworks. Thus, in the case of Norway and Chile, while one was a developed country while the other was developing, both faced difficulties in successfully implementing the NPM techniques. Even after the implementation, the reforms were able to achieve little which can be attribute to the incompatibility of the reforms with the environment within which they were applied. Thus, it is of utmost importance that reform process if backed by a preliminary study that ensure the applicability of the reforms and reflects upon the expected success rate of the reform in the particular country.

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