Public Administration Reform in Russia, May, 1, 2002

Russia approved a preliminary program for civil service reform last August, and since then, explained Dmitriev, reform of the public administration has gained prominence. President Putin emphasized its importance in his April 18, 2002 speech to parliament. For long, policymakers focused on other reforms, such as tax reform, pension reform, and judicial reform. But as the reforms launched two years ago are implemented, their efficacy is mitigated by a weak public administration. A growing consensus argues that restructuring of Russia's public administration is vital to the success of its economic and social reforms.

Inefficiency of public institutions has five negative results: low confidence in government, a lack of a sense of social contract, poor taxpayer compliance, capital flight, and sluggish growth of small- and medium-size enterprises. These, in turn, lead to high consumption of resources, unstable development of traditional industries, vulnerability to political and economic externalities, and low competitiveness.

Dmitriev used a series of scatter graphs to illustrate the correlation between good government effectiveness (a composite of indicators for rule of law, control of corruption, and the like) and high GDP. On each, Russia falls among the worst relative to its GDP level, suggesting that Russia's total factor productivity and chances for economic growth will not be good until its public administration improves. This is becoming increasingly clear not just to policymakers, but also to business elites, said Dmitriev. The problem is that there is "significant distance" between acknowledging the importance of reform and substantive change.

IMPORTANCE OF OUTPUT MANAGEMENT

A vicious cycle is perpetuated by an inefficient allocation of resources and by a resulting mismanagement of inputs, while output volume and quality are ignored. This prevents the state from being a competitive employer-the private sector can offer salaries five to fifteen times higher for a comparable position in government-so the brain drain has hurt Russia's civil service. Those who remain civil servants often are insufficiently qualified, and face perverse incentives, namely lucrative corruption.

Input management within the state bureaucracy has disconnected the civil service from the society it is supposed to serve. While Russia's population has decreased steadily in recent years, the number of government employees has increased at an inversely proportionate rate, consequently public services have become less efficient.

State institutions provide many public services, such as education, health care, roads, cultural activities, and law and order, but these services are of poor quality due to a lack of competition and, accordingly, a lack of consumer choice. Citizens do not have equal access to public services, and increased social expenditure has had little positive effect.

Even after the privatization of the 1990s, about fifty percent of the public wealth remains in state hands. It is managed "amazingly poorly," said Dmitriev, but even an efficient public administration could not successfully manage so much property. The state presence in the economy must be reduced, and the public administration must be streamlined to manage better what remains under state control.

A PLAN OF ACTION

I. Deregulation. Measures undertaken so far pale in comparison to the magnitude of the problem, though World Trade Organization (WTO) accession conditions have helped. Russia should consider following Mexico's example and appoint an ombudsman for regulation who can flag counterproductive policies.

II. Anti-corruption. The emphasis here must be shifted to prevention, away from punishments. Steps must be taken to identify potential conflicts of interest, enforce codes of ethical conduct, and increase transparency and accountability. Policymaking and regulatory functions must be separated from supervisory and service-provision functions.

III. Budgeting. Agencies should be awarded for outstanding performance, which will serve to make the bureaucracy more outcome-oriented. Certain functions could be outsourced on a competitive basis.

IV. Financial Controls. Fiscal management procedures must focus on outputs, effectiveness, and efficiency. Direct supervision by civil society institutions would promote greater transparency.

V. Consumers' Rights. Citizens' rights as consumers of social services must be protected, perhaps using the model of the United Kingdom's Citizens' Charter. In the private sector, demand-based provision of goods and services is already the norm; now that needs to be translated to the public sector. Manuals could be given to ministries so that individual and collective responsibilities are clear. A federal register of fee-based public services should be introduced.

VI. Remuneration. Salaries for civil servants must be higher, more competitive, and linked with performance.

VII. Management Practices. Employment policies should allow high-level cadres to be brought in from the private sector. Decision-making is currently excessively centralized and should be delegated to the lowest levels possible, though the priority must be to reduce the discretionary ability of any individual to intervene in the economy. Document circulation should be simplified and made electronic.

Many of these proposals-primarily those on budgeting, transparency, and ethics-have been included in draft documents on civil service reform which will be considered by a commission headed by Prime Minister Mikhail Kasyanov. Many pilot projects will be run before full-scale implementation is attempted. Gradually, these new procedures should lead to lower corruption, more efficient resource allocation, higher professionalism of state employees, better public services, and more user choice. Political support for reforms will come once people begin to see positive results, like shorter lines and more responsive public officials when civil servants truly serve society.

CHALLENGES AND RISKS

First, the consensus on this reform agenda is superficial, said Dmitriev, "The devil is in the details." Debate will become more intense during the implementation phase, so for now, the final shape of reforms remains uncertain.

Second, technical expertise in key reform areas is scarce. Russia lacks people with practical experience in modern human resources management or conflict-of-interest issues, so the quality of initial reform projects may be poor.

Third, the proposed changes run counter to Russia's bureaucratic culture, so changes will encounter enormous resistance. Bureaucrats are likely to simulate and distort reforms, internalizing none of the innovations.

Fourth, a long pilot period is planned. No one knows what the political climate will be like in five years when the time comes for full implementation.

Finally, reforms are confined to the federal level while the most serious problems lie on the sub-federal level, where local and regional bureaucracies impede economic growth. Powerful incentives will be needed to translate successful federal-level reforms to the sub-federal level.

THE INDISPENSIBLE REFORM

Public administration reform is different from other reforms, remarked Dmitriev. Unlike "second generation reforms," (for example banking reform), which are designed to help Russia to catch up with modern, western countries, this is a "third generation reform," meaning Russia is dealing with this challenge at the same time as the rest of the developed world is addressing it. The United States and others, as a result, do not have the perspective necessary to offer advice or expertise. Moreover, this is a long-range reform, so its benefits will appear only gradually over many years. Successful reform of Russia's public administration will have a huge-but indirect-impact on the country's economy. Russia's economic and social reforms cannot take root without public administration reform.

Summary by Caroline McGregor, Junior Fellow, Russian & Eurasian Program.