The Rise and Fall of Bureaucracy: WHY A NEW PUBLIC MANAGEMENT; WHY NOW?

Transaction Cost Analysis Markets and organizations are alternative venues for exchange That the choice of venue boils down to a question of information costs – search costs – negotiation costs – monitoring and enforcement costs Reducing information costs can radically affect organizational designs and market structures

Economic Revolutions of the 20th Century Bureaucratic revolution -- turn of the century Managerialism -- mid-century NOW Information revolution -- NOW

Bureaucratic Revolution The efficacy of government provision and control increased relative to the market, decreasing the payoffs to free markets, secure property rights, and minimal government intervention; The efficacy of hierarchically coordinated systems increased relative to the market and other self-organizing systems, increasing the payoff to hierarchy and vertical integration; The efficacy of centralized allocation and ex-ante control increased relative to decentralized allocation of resources and ex-post control, increasing the payoff to scale; and The efficacy of functional structures increased relative to process-oriented structures, increasing the payoff to scope.

BASIC ELEMENTS OF BUREAUCRATIC ORGANIZATIONS Centralized materials requirements and logistical planning, Coordination by rules and standard operating procedures The merit principle Functional design Decomposition of tasks Sequential processing

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Progressive Movement in US War Department under Root USDA Forest Service Municipal Reform Contracting out of services replaced by in-house production For example: NYC Dept. of Sanitation

Elements: Bureaucracy/hierarchy/managerialism Professionalization, expertise, Regimentation/task specialization Functional specialization Divisionalization Differentiation of staff from line functions-- planning and control Specialization of clerical functions--planning and control Accrual accounting (annualization) Cost accounting Donaldson Brown’s system of corporate control Internal allocation of capitol

Impact of the Information Revolution on Business and Government The market restored? Versus hierarchy -- virtual organizations Versus government -- deregulation & privatization Organizations transformed Radical downsizing, decentralization, and de- specialization Time-based structures, process focused designs, Networked organizational structures

EVENTS THAT TRIGGER INSTITUTIONAL INNOVATION Demographic changes New knowledge Gap between expected and actual events or outcomes Chronic dissatisfaction with actual outcomes Mood or fashion changes EVENTS THAT TRIGGER INSTITUTIONAL INNOVATION Demographic changes New knowledge Gap between expected and actual events or outcomes — i.e., unanticipated or surprising success or failure Chronic dissatisfaction with actual outcomes Mood or fashion changes

Exhibit A