Measuring Public Sector Productivity Prelims
Measuring Public SectorProductivity: Lessons fromInternational Experience
CPMR Discussion Paper35Measuring Public SectorProductivity: Lessons fromInternational ExperienceRichard Boyle
First published in 2006by theInstitute of Public Administration57-61 Lansdowne RoadDublin 4Irelandin association withThe Committee for Public Management Researchwww.ipa.ie 2006 with the Institute of Public AdministrationAll rights reserved. No part of this publication may bereproduced or transmitted in any form or by any means,electronic or mechanical, including photocopying, recordingor any information storage and retrieval system, withoutpermission in writing from the publisher.British Library Cataloguing in Publication DataA catalogue record for this book is available from the BritishLibrary.ISBN-13: 978-1-904541-49-3ISBN-10: 1-904541-49-6ISSN: 1393-6190Cover design by Creative Inputs, DublinTypeset by the Institute of Public AdministrationPrinted by ColourBooks Ltd, Dublin
CONTENTSForewordviiExecutive SummaryixChapter 1: Introduction1.1 Background and context of the study1.2 Report Structure112Chapter 2: Some definitions and challenges42.1 Introduction42.2 Challenges to public sector productivity measurement 6Chapter 3: Cross-national comparisons of public sectorproductivity and performance83.1 Introduction83.2 European Central Bank international comparison ofpublic sector efficiency83.3 Netherlands Social, Cultural and Planning Officestudy of public sector performance113.4 World Bank governance indicators143.5 OECD Management in Government: ComparativeCountry Data project153.6 Conclusions16Chapter 4: National and sectoral productivitymeasurement initiatives4.1 Introduction4.2 National public sector productivity measurementinitiatives4.3 Sectoral productivity measurement4.4 ConclusionsChapter 5: Organisation-level and bottom upproductivity measurement5.1 Introduction5.2 Measuring organisational productivity in Denmarkv1717172227292929
5.3 Bottom up productivity measurement5.4 ConclusionsChapter 6: Conclusions and recommendations aframework for the development of public sectorproductivity measurement in Ireland6.1 Introduction6.2 Creating a framework for developing public sectorproductivity measurement in Ireland6.3 Conclusion303234343438Annex 1 Listing of sources and concepts included inthe World Bank Government Effectiveness indicator40Annex 2 Examples of output indicators in the centralgovernment in Finland44Annex 3 The UK Office of the Deputy Prime Minister‘basket’ of cost effectiveness indicators46Notes47References48vi
FOREWORDThis paper is the thirty-fifth in a series undertaken by theCommittee for Public Management Research.TheCommittee is developing a comprehensive programme ofresearch designed to serve the needs of the futuredevelopments of the Irish public service.Committeemembers come from the following eight departments:Finance; Environment, Heritage and Local ommunications, Marine and Natural Resources; Socialand Family Affairs; Office of the Revenue Commissionersand also from Trinity College Dublin, University CollegeDublin and the Institute of Public Administration.This series aims to prompt discussion and debate ontopical issues of particular interest or concern. The papersmay outline experience, both national and international, indealing with a particular issue. Or they may be moreconceptual in nature, prompting the development of newideas on public management issues. They are not intendedto set out any official position on the topic under scrutiny.Rather, the intention is to identify current thinking andbest practice.We would very much welcome comments on this paperand on public management research more generally. Toensure that the discussion papers and wider researchprogramme of the Committee for Public ManagementResearch are relevant to managers and staff, we need tohear from you. What do you think of the issues beingraised? Are there other topics you would like to seeresearched?Research into the problems, solutions and successes ofpublic management processes and the way organisationscan best adapt in a changing environment has much tocontribute to good management, and is a vital element inthe public service renewal process. The Committee forPublic Management Research intends to provide a service tovii
people working in public organisations by enhancing theknowledge base on public management issues.Jim Duffy, ChairCommittee for Public Management ResearchDepartment of FinanceFor further information or to pass on any comments pleasecontact:Pat HicksonSecretaryCommittee for Public Management ResearchDepartment of FinanceLansdowne HouseLansdowne RoadDublin 4Phone: ( 353) 1 676 7571; Fax: ( 353) 1 668 2182E-mail: hicksonp@cmod.finance.irlgov.ieGeneral information on the activities of the Committee forPublic Management Research, including this paper andothers in the series, can be found on its website:www.cpmr.gov.ie; information on Institute of PublicAdministration research in progress can be found atwww.ipa.ie.viii
EXECUTIVE SUMMARYThis is a study of international experience in measuringpublic service productivity. The research informs possibleapproaches to public sector productivity measurement forthe Irish public service. The study focuses on three mainaspects of productivity measurement: attempts to developcomparative, cross-national assessments of public sectorefficiency and performance; national and sectoral publicsector productivity measurement initiatives; and a moremicro-level examination of productivity measurement,looking at organisation-based and bottom up initiatives tomeasure public sector productivity.Comparative cross-national assessments of publicsector productivity and performanceThere has been a growth in recent years in internationalcomparative studies of public sector performance. Some ofthese explicitly include productivity measurements; othersfocus more generally on broad performance issues. Theseinternational studies provide scope for a comparativeassessment of how Ireland is performing, particularly ifstudies are repeated over time, allowing trends to beestablished.However, the studies themselves warn of the danger ofputting too much faith in drawing comparisons, givenqualifications about the type and reliability of data used togenerate the indicators in the studies. It is clear thatfindings are of a tentative nature, and that improvementsare needed if such studies are to provide a sound evidencebase. In the context of improving the evidence base, theOECD’s Management in Government: Comparative CountryData project, started in 2006, is a significant initiative.National and sectoral public sector productivitymeasurement initiativesIn recent years, various countries at both national andsectoral levels have engaged in productivity measurementix
initiatives. Brief reviews of progress in the UK, Finland,Sweden and Australia are examined here. This is followedby illustrative examples of productivity measurement inthree sectors: health, education and local government.The evidence from national and sectoral studies ofpublic sector productivity measurement is that despiteefforts going back to the 1980s, the productivity measuresbeing produced need to be interpreted cautiously. There isalso the danger that over-simplistic use of the measurescan lead to perverse consequences. Supporting evidence isneeded to corroborate the findings of productivitymeasures.A further general point emerging from the casesexamined is the lead role being taken by national statisticsoffices in public sector productivity measurementinitiatives. The involvement of the national statistics officesis required because of a Eurostat directive on developingoutput measures for the national accounts.Nationalstatistics offices also play a lead role in providing qualityassurance and guarantees about data reliability andvalidity.Where similar institutions are providing similarservices, it is possible to develop comparative productivitymeasurements, as examples from the Australian states andfrom local government show. Using techniques such asfrontier analysis it is possible to identify relatively efficientand relatively inefficient organisations. The same cautionsas to data reliability and interpretations as raised above,however, still apply.Organisation-based and bottom up initiatives on publicsector performance measurementOrganisation level productivity measurement is likely to bea feasible and useful tool for those organisations that haveclear, identifiable outputs that can be linked to inputs used.These measures do not necessarily need to cover the wholeorganisation, and may be indicators of productivity fordiscrete parts of the organisation.Bottom up/service user measurements of performance,such as the time and cost associated with setting up a newbusiness, are being developed in a number of places. Whilethey are not productivity measurements in the strict sensex
(as they focus on the outputs and broad performance ofpublic sector organisations rather than linking this data toinputs in a direct manner) they do help provide a picture ofwhat value is being delivered by public services in return forthe expenditure supports provided. As such, they have apotentially important role to play in productivitymeasurement when interpreted in a broad sense. Bottomup measures can also be a helpful source of information toprovide triangulation data for more conventionalproductivity studies.Developing a framework for public sector productivitymeasurement in IrelandInformation on public sector productivity in Ireland islimited. So as to develop a broad range of measures ofproductivity and not rely on single data sources, aframework for the development of productivitymeasurement is outlined in the table below.Thisframework proposes that action be taken at a number oflevels cross-national, national and sectoral, andorganisation-based and bottom up to develop informationon public sector productivity in Ireland. In this way, adiversity of approaches to productivity measurement can beused to provide a broad picture of productivitydevelopments. The framework draws from lessons learnedfrom the international experience outlined in this study.xi
A framework for the development of public sectorproductivity measurement in IrelandProductivity initiativeCross-national comparativestudiesAction required National and sectoralinitiatives Organisation-based andbottom up initiatives Track Ireland’s comparativeperformance in periodic studies ofpublic sector performance andefficiency such as the World Bankand European Central Bank studies.Actively participate in and encouragethe OECD Management inGovernment: Comparative CountryData initiative.The Central Statistics Office shouldtake a lead role in the development ofthe measurement of governmentoutput and subsequent productivitystudies.Annual output statements beingdeveloped by governmentdepartments should informproductivity studies.The health and education sectorsshould be priorities for productivitystudies.Relevant state bodies and academicinstitutions should be encouraged toundertake research into public sectorproductivity measurement.Benchmarking of comparableorganisations should take place.Organisation-based measures ofproductivity should be developed,using annual output statements as abasis for this work.Central agencies should sponsor anumber of service user based studiesof the efficiency of public serviceprovision across a range of sectors,repeated periodically.Benchmarking with comparableorganisations should be encouraged.xii
1Introduction1.1 Background and context of the studyThe pay awards recommended by the Public ServiceBenchmarking Body and implemented as part of the socialpartnership arrangements have generated significant publicdiscussion about the productivity gains realised in returnfor pay increases in the public sector. The subject of publicsector productivity is of growing concern to many interestedparties. As Afonso, Schuknecht and Tanzi (2006) note inrelation to public sector efficiency in European andemerging markets:Health, education and similar activities absorb a largeshare of the government payroll and the personnel whowork for government If mostly higher salaries absorbadditional resources allocated to these activities and thehigher salaries are not accompanied by higherproductivity of the public employees, the higher publicspending can be unproductive and produce littleadditional benefits to the students or patients.But public sector productivity is notoriously difficult tomeasure, not only in Ireland but also internationally. Muchproductivity data for the public sector is of questionablevalidity and/or reliability. Assessing the productivity ofpolicy-oriented organisations has proved particularlychallenging.A number of international studies have been carried outthat address the issue of public sector productivity. Someof these studies examine ‘whole of government’ productivityand make comparisons between countries (for example seeSocial and Cultural Planning Office, 2004). Some studiesfocus on sectors (health, education etc) and may becountry-based or aim to examine cross-national trends (for1
2MEASURING PUBLIC SECTOR PRODUCTIVITYexample, see Atkinson, 2005). Other studies aim to trackproductivity changes over time in public administration inindividual countries (such as productivity studiesundertaken in Sweden, Ministry of Finance, 1997).There are also initiatives underway at present that willfurther the examination of public sector productivity. AEurostat directive on price and volume measurement ofgovernment output is generating work in European memberstates on improving output measures in the public serviceand the development of productivity measures (Eurostat,2001)1.The OECD public sector management andperformance division are undertaking a project onManagement in Government: Comparative Country Data thataims to develop comparable data and indicators of goodgovernment and efficient public services.The OECDproposes to take 3-5 years to develop the database, with aninitial report at the end of 2006. The database will includeinformation on government inputs and outputs and hencefacilitate productivity assessment.Given the current state of play with regard to publicservice productivity measurement, a phased approach hasbeen adopted by CPMR for this research topic. In this firstphase, a detailed examination of previous internationalexperience in assessing public service productivity has beenundertaken. This research will inform possible approachesto be developed for the Irish public service into the future.As such, it is intended to inform both future CPMR workand the work of others interested in this area.1.2 Report structureChapter 2 deals with some of the definitions of productivityand the challenges associated with productivitymeasurement. Chapter 3 examines attempts to developcomparative, cross-national assessments of public sectorefficiency and performance. In Chapter 4, national publicsector productivity initiatives in a number of countries areoutlined, together with sectoral studies (health, educationetc) within countries. Chapter 5 is a more micro-levelexamination of productivity measurement, looking atorganisation-based and bottom up initiatives to measure
INTRODUCTION3public sector productivity. Finally, in Chapter 6, thelessons learned from international experience are drawntogether to help develop a framework for the development ofpublic sector productivity measurement in Ireland.
2Some definitions and challenges2.1 IntroductionProductivity is generally defined as a measure of theamount of output generated per unit of input. In manycountries, including Ireland, public sector productivity hasbeen assumed to be zero in the national accounts. Theoutput of the government sector has been measured as ofvalue equal to the total value of inputs. This output inputconvention has increasingly come under scrutiny in recent2years and is no longer accepted practice from 2006 . Thechallenge is to devise alternative estimates based on outputmeasurement, in a public sector context where there isprovision of collective services, and where there is nomarket transaction in services provided to individuals inmost instances.If it is accepted that in reality changes in outputs arenot likely to be directly equivalent to changes in inputs,Pollitt and Bouckaert (2004) note that public sectorproductivity may increase for a variety of reasons: where resources (inputs) decrease and outputs increasewhere resources remain the same and outputs increasewhere resources increase but outputs increase by aneven larger amountwhere outputs remain static but resources decreasewhere outputs decrease but inputs decrease by an evenlarger amount.However, this definition of productivity as beingconcerned with the relationship between inputs andoutputs does not cover issues that many people have inmind when they talk about public sector productivity. Amore general interpretation of productivity encompassesbroader concerns about the outcomes achieved by the4
SOME DEFINITIONS AND CHALLENGES5public sector. In common parlance, when many people talkabout public sector productivity, they have in mind thegeneral question of what value they are receiving frompublic services in return for the application of public funds.Putnam (1993) rejects the idea of including outcomes inproductivity measurement. His argument is that to focuson outcomes (changes in health rather than patientstreated; changes in educational status rather than numbersof lessons taught) includes changes over which thegovernment has no control:To include social outcomes in an assessment ts Miracle Fallacy’: only a modest part ofthe praise for the affluence of New England in the 1980s(and a similarly modest portion of the blame for thesubsequent recession) was realistically attributable tostate government, despite 1988 presidential campaignrhetoric to the contrary.Notwithstanding the problems with assessingproductivity using an outcomes focus as indicated above, inthis paper, both the input/output measurement andbroader assessments of public sector productivity,including a focus on outcomes, are included in thediscussion on productivity. It is accepted that for nationalaccounts purposes, and when attributing changes inproductivity to the public sector, strict definitions areneeded. But the broader interpretation of productivity asincluding a concern with outcomes, while having statisticaland measurement limitations, nevertheless has resonancewith the general public and may raise interesting questionseven if it does not provide definitive answers.Both the narrow, economic definition of productivityconcerned with the input/output ratio and the broaderproductivity definition concerned with the input/outcomeratio can be considered sub-sets of public sectorperformance measurement. Performance measurement isnot confined to issues of productivity, and may examine
6MEASURING PUBLIC SECTOR PRODUCTIVITYinputs, outputs and outcomes without necessarily beingconcerned with the measurement of the ratio betweenthem.2.2Challenges to public sector productivitymeasurementEven when the definition of public sector productivity isconfined to the relationship between inputs and outputs,there are challenges in measurement, both of inputs andoutputs.Inputs are made up of three elements: labour,procurement of goods and services and capitalconsumption (Atkinson Review, 2005). Measurement ofeach of these elements may pose particular challenges inpractice. For example, with regard to labour, shouldnumber of hours worked (differentiated by skill) be usedinstead of the number of people employed? With regard tothe measurement of outputs, the European Commission(2004) identify three important issues: how t
2.2 Challenges to public sector productivity measurement6 Chapter 3: Cross-national comparisons of public sector productivity and performance 8 3.1 Introduction 8 3.2 European Central Bank international comparison of public sector efficiency 8 3.3 Netherlands Social, Cultural and Planning Office study of public sector performance 11
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