Administrative and Civil Service Reform

Transcription

1 Administrative and Civil Service Reform Policy note prepared for Russian Federation authorities Neil Parison with Gord Evans May 2004 NRP Page 1 September 13, 2004

2 ADMINISTRATIVE AND CIVIL SERVICE REFORM POLICY NOTE...3 OBJECTIVE : ACCELERATE DEVELOPMENT OF G7 STANDARD PUBLIC ADMINISTRATION TO ACHIEVE KEY POLICY OBJECTIVES...3 (1) ALIGN STRUCTURES AND FUNCTIONS WITH KEY GOVERNMENT POLICY OBJECTIVES...6 (2) STRENGTHEN POLICY MANAGEMENT CAPACITY AT THE CENTRE OF GOVERNMENT...14 (3) IMPLEMENT SYSTEMS AND PROCESSES FOR DELIVERING EFFECTIVE GOVERNMENT PERFORMANCE...17 (4) REBUILD INCENTIVES, ETHICS AND VALUES...25 (5) STRENGTHEN TRANSPARENCY AND EXTERNAL ACCOUNTABILITY...30 (6) APPLY SUFFICIENT RESOURCES TO SECURE ACCELERATED IMPLEMENTATION...31 NRP Page 2 September 13, 2004

3 Administrative and civil service reform policy note The Japanese Government has fostered the exceptionally rapid growth of its freeenterprise economy using a well-educated and greatly respected civil service (Wassily Leontief, 3 March 1992) The Soviet Government spent as much on cars and drivers for bureaucrats as it did on public transport (Karl Ryavec, 2003) Objective : Accelerate development of G7 standard public administration to achieve key policy objectives Russia needs a G7 standard public administration to be able to achieve key policy objectives such as achieving significantly increased economic growth and doubling GDP; reducing poverty by half over the next three years; and being able to compete effectively in the global economy. A major restructuring of the country s public administration is essential in order to create an investment climate attractive to Russian capital and to Russian investors; secure significant volumes of foreign direct investment; and create the conditions for the SME sector to provide the engine for growth; while at the same time providing appropriate social and other services to citizens and the population. NRP Page 3 September 13, 2004

4 Public sector reform is a necessary pre-condition for the Russian Federation Government to develop and implement effectively its medium-term program of structural and social reforms; and for it to have sufficient capacity to be able to manage the effective implementation of thematic reform programs. The aim should be to create a small, compact Federal civil service able to attract and retain the required skills and expertise; which displays a strong orientation to client service, performance, and achieving outcomes; which is corruption-resistant and regarded as credible by citizens and the private sector; and which produces innovative, sustainable policies to implement national priorities. Developing and implementing a public sector reform program of this magnitude represents a major challenge, the complexity of which cannot be under-estimated. It will require changing the values and behaviors of approximately one-third of a million Federal civil servants (and around one million civil servants in total including regional and municipal levels of government). Experience with similar reforms in G7 countries shows that significant improvements in efficiency and effectiveness can be obtained from such a program, but only if accompanied by a clear vision, sustained commitment from political leadership, and significant investment in the reforms. While the agenda is daunting, the Russian Federation authorities have made an excellent start towards putting in place the required legal, institutional and policy frameworks. A radically improved structure of the Federal Government is being implemented; initial functional reviews have been completed; civil service reform is well under way; and budget reform has been launched. NRP Page 4 September 13, 2004

5 However, the major challenge, successful, sustainable implementation, lies ahead. First, the Russian Federation authorities face a particular challenge in extending the desired reforms beyond the Federal Government to the subjects of the Federation and to municipal and sub-municipal levels. Second, the focus on rationalizing the structure of government, while important, must be accompanied by improvements in process and capacity, most notably in the area of strategic planning and policy development. In this context, the policy note provides suggestions for consideration by Russian Federation authorities with respect to gaps that need to be addressed and current reforms that could be accelerated. The paper focuses on Federal level reforms; but assumes that parallel reforms should be pursued through providing incentives to and forming partnerships with administrations of the subjects of the Federation. The main focus of the paper is on identifying key opportunities rather than presenting a full assessment of the existing reforms, which are taken as givens. The challenge is to identify ways of making a real difference more quickly. Three other points of context need to be made. First, the paper acknowledges the significant number of highly capable and committed civil servants across Russia s public service who are doing an outstanding job in extremely difficult circumstances. The reforms must create an environment where these civil servants can have maximum impact and be optimally effective in their work. Second, while administrative reform and civil service reform are important components of state reform, they cannot be developed in isolation from other key NRP Page 5 September 13, 2004

6 reforms such as budget reform and intergovernmental fiscal reform (covered in a separate policy note). Moreover, the benefits of streamlined structures and a highperforming civil service will only be fully realized if policy management systems are modernized (covered later in this paper). Third, the overall size of the public service (Federal, regional and municipal civil services) does not appear to be particularly out of line with international comparators, despite an overall 80 percent growth in numbers over Much of this was caused by the need to set up new structures to meet the needs of the developing market economy, such as the Federal Treasury, the tax service and the privatization and antimonopoly ministries. Indeed, the aggregate numbers appear to compare favorably with advanced OECD countries. However, while overall numbers of civil servants have been reduced over recent years in the Moscow-based Federal bodies of executive power, there has been in some cases considerable continued growth at the regional levels. Within the public administration, there are areas of overstaffing as well as some areas of understaffing. Some key areas of the Government s work program are not at present adequately resourced in terms of civil servants. Correspondingly, there are significant opportunities to achieve major reductions in staff numbers through the application of IT solutions within government. (1) Align structures and functions with key government policy objectives The old government structure and functions were not aligned with the Government s key policy objectives. The old structure and functions of the Federal Government were in many ways more appropriate to the needs of a command rather NRP Page 6 September 13, 2004

7 than market economy. The old machinery comprised a number of competing, overlapping structures with unclear internal and external accountability. These structures included the Government (ministries, state committees, committees, services, and agencies), as well as the Apparat of the Government, and the Administration of the President. The existence of these parallel and often duplicative structures led to a weakening of the policymaking role of line ministries, weak accountability, poor policy management by the centre, and fragmented decisionmaking. Lack of clarity about the purpose of each different type of government body and of appropriate accountability arrangements between different types of government bodies significantly complicated internal coordination. The structures of individual ministries and other bodies were often inappropriate to fulfilling their mandates or delivering the priorities of the Government s work-program. This resulted in the wide use of inter-ministerial commissions to resolve complex interagency issues, which increased transactions costs and undermined the transparency of decision-making. To address these issues, the President announced in March 2004 (revised in May 2004) a radically streamlined structure for the Russian Federation Government and for constituent bodies of Federal executive power. This reform was intended to tackle issues such as the different types of government bodies; their respective roles; and the overarching accountability/subordination framework. The reform further sought to increase the effectiveness of government decision-making and policy management at the centre of government and of overall government performance. NRP Page 7 September 13, 2004

8 While government restructuring is often driven more by political interest in building coalitions and wielding influence than improving efficiency and effectiveness, it appears from present international practice that structures of government should: (1) Provide for a clear allocation of mandates, responsibilities and accountabilities, avoiding ambiguity, duplication and overlap. (2) Provide for appropriate spans of control. (3) Be simple and robust, with basic principles clear to all stakeholders. Each Minister s set of portfolios should be explicitly and clearly related in some important way. (4) Provide for checks and balances within institutional arrangements; and be set within an appropriate accountability framework to the legislature and to the three main client groups of the public administration, including: accountability to politicians (for policy advice, analysis, and evaluation); accountability to citizens (for service delivery and delivery of public goods); and accountability to the private sector (for delivery of an attractive investment climate, level playing field and appropriate regulatory regime). (5) Promote strong client orientation; and be based as far as practicable on delineation between policy formulation and implementation responsibilities. NRP Page 8 September 13, 2004

9 (6) Facilitate the centralization of strategic policy coordination within a few bodies at the center of Government, with sectoral policy formulation shifted to Ministers. (7) Ensure avoidance of conflicts of interest. (8) Reflect the country s priority issues and facilitate achievement of the Government s medium-term plan. Structures may change as Government priorities develop and change overall Government and individual Ministry structures should not be viewed as permanent. (9) Advance the maximum possible decentralization of responsibilities in service delivery areas to regions and municipalities; but set this decentralization within an appropriate accountability framework. The March/May 2004 reform appears to be fully in line with recent international trends and best practices, particularly in G7 and OECD countries. The new total of fifteen Ministries and eighteen members of the Cabinet of Ministers is similar to OECD countries, which average 12 to 15 Ministries; plus the Prime Minister. While the number of Ministries has been reasonably stable in many OECD countries over recent years 1, the strong trend has been towards a reduced numbers of much more compact Ministries with a much stronger focus on policy analysis and development. The new structure of ministries, services and agencies in the Russian Federation also 1 Australia reduced the number of Government Departments from 28 to 18 in 1987, Canada reduced the number of Ministries from 40 to 22 in NRP Page 9 September 13, 2004

10 reflects international practice in that it clearly differentiates between a small number of organizational types within a clear internal accountability framework. Notwithstanding the recent reforms in the Russian Federation, confusion persists among civil servants, clients and stakeholders concerning the respective roles and remits of the new types of government bodies introduced under the new structure. It could be appropriate going forward to provide for greater clarity in this area through emphasizing the different characteristics of the different types of government bodies as follows: (i) Ministries: The primary focus of Ministries should be on providing policy support to Ministers in areas such as: strategic planning; policy development; policy analysis; budget strategy; monitoring; evaluation; and legislative drafting. Each Ministry will accordingly be more compact, focusing on a homogenous policy development and analysis portfolio. Ministries will be funded almost entirely from the state budget, with very limited or no own revenue earnings. Staffing for Ministries will be largely drawn from the core state civil service - emphasizing merit and innovation in addition to traditional factors such as discipline, length of service, and loyalty. (ii) Government services: Government services should be primarily concerned with the delivery of core, routine services where the client is the Federal government. The objectives of a government service would normally be determined by the appropriate Minister. Each government service should operate within a clear accountability framework established by a specific NRP Page 10 September 13, 2004

11 Ministry and have a clear reporting arrangement to a specific Ministry. The source of funding for such services will be primarily the state budget, but may include retention of some revenues collected. Bodies such as the tax service and the customs service represent classic government services: the client of each of these is primarily the Government overall; and policy discretion is at a minimum. (iii) Executing Agencies: Executing agencies should be delegated and devolved public bodies which are primarily concerned with the delivery of specific services to citizens and to the private sector in areas where the public sector has comparative advantage and where it is not felt by the political elite for it to be appropriate to decentralize responsibility for provision of service delivery to regions or local governments. The policy priorities and service objectives of an executing agency are normally determined by the accountable Minister. Each agency should operate within a clear accountability framework established by a specific Ministry and have a clear reporting arrangement to a specific Minister. The source of funding for such agencies will include the state budget, and may include also some revenue earnings. (iv) Regulatory Bodies: A fourth type of government body should perhaps now explicitly be created - regulatory bodies - i.e., arms-length bodies with statutory independence to ensure fair, effective functioning of government and the private sector in areas such as: energy, financial markets, competition, and the environment. Other types of autonomous bodies, such as the state statistics body, may also be treated as regulatory bodies to ensure long-term predictability NRP Page 11 September 13, 2004

12 and independence in the delivery of their mandate. This would promote private sector and public confidence in such agencies and their work. In addition, Corporatized State Owned Enterprises (SOEs) could be set up under the next stage of restructuring reforms. SOEs would be set up to deliver services which can be operated along private sector lines. As such, they could be commercialized and corporatized, and, in time, become candidates for privatization. SOEs will need to establish a clear contractual relationship with a particular Ministry and may enjoy significant revenue earnings to offset previous subsidies and reduce budget dependency. Once implementation of the new structure has been completed over the next few months, a second stage program of ministry/service/agency level functional reviews should be implemented. These would ensure that the structure, functions, staffing levels and performance objectives of each of the new bodies were fully aligned. These functional reviews could also identify and functions or services to be (i) set up as corporatized SOEs; (ii) privatized; (iii) decentralized to regions or municipalities; (iv) transferred to self-regulating bodies, as market conditions and institutional capacities permitted; (v) identified for outsourcing or for market testing through external tendering; (vi) set up as non-profit making organizations, or as public/private partnerships; or (vii) simply eliminated (see decision-tree below). NRP Page 12 September 13, 2004

13 no Administrative and civil service reform policy note Using functional reviews to allocate functions to different types of government bodies Decision made that functions are still necessary Disaggregate functions: Policy Co-ordination Service delivery Support Regulation Is this function "inherently governmental" because of its complexity and political sensitivity? yes no Could this function be undertaken by subnational government? yes Devolve or decentralize Regard as inherently governmental - locate within central government no Is there or could there be a market? yes Are citizens or businesses willing/able to pay the full costs of the service? yes no Can government tolerate the risk of closure? yes Contract from the private or not-for-profit environment yes Can this service be contracted out? yes Will contingent liabilities be exacerbated? no Leave to the private or not-for-profit environment no The above arrangements require the creation of a hierarchy of different types of government bodies, including a two-tier system within the structure of the Federal Government where each government service and executive agency (and corporatized SOE) operates within a clear accountability and reporting framework to a specific NRP Page 13 September 13, 2004

14 Ministry. This will clarify the legal and budgetary status and the performance management system under which the parent ministry will secure appropriate performance from each service or agency falling within its remit. (2) Strengthen Policy Management Capacity at the Centre of Government The restructuring of the Russian Federation Government should lead to the Cabinet of Ministers being better able to enforce individual ministerial accountability. Cabinet Committees could be established to support effective inter-ministerial coordination and effective joint working. For example, there could be a standing Cabinet Committee for issues relating to the Government s economic and structural reform program; one relating to the Government s social program ; and one relating to state reform issues. Further ad-hoc Cabinet Committees could be formed as required (e.g., on banking reform or WTO accession). The intention to undertake a radical restructuring of the Apparat of the Government also appears to be fully appropriate; and indeed will be essential if the new structure of government is to operate effectively. The Apparat of the Government should focus increasingly on Government-wide strategic planning, policy evaluation, supporting the Cabinet of Ministers in managing the Government s work program, and monitoring the substantive implementation of the overall Government program and of specific individual Government decisions. Given that Ministries would have unambiguous responsibility for the development of sector policy, this would imply that sectoral departments would transfer from the Apparat of the Government to Ministries (particular attention would need to be paid to retaining the significant NRP Page 14 September 13, 2004

15 expertise which exists within these Apparat departments within Government). To fulfill its strategic policy management and coordinating role, the Apparat of the Government would need to be small but comprised of staff of extremely high quality. Consideration could be given to structuring the Apparat as a Government Secretariat or Cabinet Office. Similarly it would also be positive if policy management responsibilities within the Administration of the President were kept under review in order to eliminate overlap and duplication with functions undertaken by the Government. Structural changes will need to be accompanied by far-reaching changes in the way that policy objectives are planned, developed and implemented. The gap between policy intentions and the concrete results actually achieved may arise at any point in the process of policy implementation. For the government, the net result is broken promises; for the public or businesses it is poor service and unpredictability. The overhaul of the policy process and the way in which policy is managed by the center is fundamental to the Government being able to deliver on its work program priorities and commitments to the public. Policy management reform will need to be accompanied by and integrated with budget reform. International practice suggests that a robust policy process should possess the following qualities: strategic - policy decisions are taken within a medium and, where feasible, long-term planning context, are consistent with a broader vision, and are shaped by appropriate assessments of risk and sustainability NRP Page 15 September 13, 2004

16 integrated - policy decisions are informed by financial and human resources considerations, and vice versa coherent - policy decisions are consistent in concept and application both within a particular policy field and also across related policy fields contestable - single options are discouraged; every major policy assumption is carefully tested, debated and challenged continuity - once taken, policy decisions are likely to remain in effect for a reasonable period of time; subject area expertise is developed, valued and retained creative - innovative thinking is encouraged and rewarded cost-effective - policy decisions provide value for money by maximizing impacts within available resources consultative - policy development engages interested parties outside the public administration (e.g., civil society, private sector, academia) performance-driven the goal of identifying and maximizing concrete results influences all stages of the policy process (ex ante and ex post). NRP Page 16 September 13, 2004

17 In the Russian Federation, the Apparat of the Government should be expected to play a leading role in designing and implementing these reforms on behalf of the Cabinet of Ministers. (3) Implement systems and processes for delivering effective government performance While it is important to complete the implementation of the new government structure, it is of much more importance to develop and implement the systems and processes which are required for the new structure to be able to operate effectively. Implementation of the new structure is in itself unlikely to secure the desired outcomes of administrative reform. An effective performance management system will be driven by two sets of factors. Organizational and individual goals and accountability must support the achievement of the government s policy priorities. In addition, all ministries must be able to deliver effectively and efficiently their legal mandates. The set of systems and processes which need to be developed and put in place is shown below. NRP Page 17 September 13, 2004

18 Functional review Process reengineering IT systems modernization Developing systems and procedures for managing Government performance Ministry statute Administrative regulations Service standards Performance management Internal accountability External accountability Performance budgeting Job descriptions Performance appraisal Transparency Merit, pay, ethics and values To ensure coherent organizational mandates, it is recommended that a second wave of ministry/service/agency level functional reviews be undertaken. These would be combined with exercises to undertake business process re-engineering of key processes within the ministry/service/agency in question. Proposals would be developed for IT modernization to deliver the revised agreed set of functions and supporting business processes. A new ministry/service/agency statute (polozheniye) would then be developed to reflect the agreed set of functions. This in turn would be underpinned by a set of administrative regulations to prescribe how the agreed set of functions would be delivered. Associated service standards would then be developed. Individual employees would then be assigned objectives and responsibilities through individual job descriptions. NRP Page 18 September 13, 2004

19 A parallel system for performance management would also then be developed. This would add three year and one year priority objectives for the ministry/service/agency in question. This would in turn provide the basis for control of performance of the ministry/agency/service in question through a system for internal accountability. A framework for external accountability based on the actual performance achieved against the service standards defined for the ministry/agency/service in question. Individual performance appraisal of the work of employees would be undertaken in the context of all the above systems and processes. The system for performance management would of course be closely linked to the system being developed for performance based budgeting. The whole set of systems and processes described above would be underpinned further though a system-wide approach to securing maximum transparency both internally and externally; and through ongoing implementation of civil service reform to put in place the merit principle and provide a framework for rebuilding incentives through pay reform, performance based career development, and the development of approaches to supporting new values and ethics in line with those required for the effective operation of the remodeled public administration. When undertaking the second stage ministry/service/agency functional reviews, it will be important to avoid locking in place existing inappropriate and inefficient processes and approaches. It is suggested therefore that the functional reviews be combined with an exercise to undertake where possible functional restructuring and rebuilding of NRP Page 19 September 13, 2004

20 existing business processes. IT applications can then be developed to support the efficient delivery of the re-engineered structure, functions and processes. To give a specific example of what is possible in this area, it may be helpful to consider the process re-engineering of business registration (undertaken in the context of the World Bank-supported tax administration program). Before restructuring, this process took around six months, and involved ten to twelve different ministries/agencies, and masses of paperwork and stamps/visas indicating formal approval given to a stage in the process. This has now been restructured so that a single agency (the old Ministry of Taxes and Revenues) undertakes all the required liaison with all other ministries/agencies. The courts are no longer involved in the process. The new process requires a fraction of the information and information resources of the old process. Paperwork is now kept to a minimum; and electronic registration can be completed in two days (maximum period is 6 days). The problems of inappropriate structure and functions were severely exacerbated in the old structure by extreme inefficiencies in business processes and systems. While the Russian private sector over the last fifteen years has made full use of emerging IT systems and approaches, and while IT services is itself a comparative advantage for Russia, the public service lags far behind. The Russian public service is massively under-computerized; makes almost no use of ; has no effective Government Intranet to speed internal business processes; and has very little electronic service delivery. In addition, Russia was for several decades isolated from modern management theory. Strategic planning, impact analysis, investment appraisal and NRP Page 20 September 13, 2004

21 human resource management remain particularly under-developed in the public sector. Again, the problems of course are recognized and a start has been made to address these problems, notably through the Electronic Russia Program (there are also a number of major public sector modernization projects involving significant IT developments and financed in part by the World Bank in the area of tax, customs and treasury), and through the Program for Modernization of the Federal Civil Service. However, the financing made available for Electronic Russia has been nowhere near what is required to make a real difference in this area; and little attempt has been made to integrate and seek synergies and savings from a structured approach to managing IT development projects and budgets across the Federal government (compare this situation for example with the Federal Enterprise Architecture Program of the US Federal Government). Care needs to be taken with sequencing of these reforms. It is important to complete the processes of functional restructuring and rebuilding of business processes before seeking to encapsulate functions and processes through development and implementation of IT solutions. This has a number of implications. Firstly, there need to be clear criteria established for the functional restructuring and rebuilding of business processes for those functions judged by the functional review exercise as being required to be provided by the ministry/service/agency in question. Secondly, an overall standard approach needs to be developed for: NRP Page 21 September 13, 2004

22 (i) encapsulating the rebuilt business processes in electronic administrative regulations and procedures; (ii) adopting a common approach to building the information/data architecture for government IT systems; (iii) seeking to base government IT systems on common core business processes and systems components wherever possible; and (iv) subjecting all government investments in IT to scrutiny to ensure appropriate integration and commonality of approach can be built in from the outset. This also represents a major culture change with respect to how IT projects and systems are developed and implemented within the Federal civil service. There are also a number of key developments which need to be undertaken at the government-wide level, including development of a government Intranet, , and management information and monitoring systems. A common approach also needs to be developed, as foreseen in the Electronic Russia Program, for delivery of government services through the Internet (electronic service delivery), including building a network of local access points for citizens and small enterprises at municipal and sub-municipal level. Priority applications could perhaps include an Internet registry of all regulatory regimes (Federal, regional, municipal) including forms to be completed; contact points; how to submit; service standards; fee; which could in time be developed so that all regulatory permissions (registrations, permits, licenses) are applied for on-line with no direct face-to-face interaction between the applicant and a public official. NRP Page 22 September 13, 2004

23 The next question which arises is how best to ensure that performance management and monitoring arrangements and an internal accountability framework can be developed and put in place to ensure that each ministry/service/agency is actually delivering effectively the objectives, functions and services falling within its remit. This is perhaps particularly important given that there are at present within the executive a number of concerns about the effectiveness of internal accountability arrangements for managing government performance. Firstly, there is a concern that control at the center of government over the implementation of Presidential decrees and Government decisions is comparatively weak; and concern that there is weak accountability for poor performance in this area. Secondly, there is a concern that the plans and targets of individual ministries and other bodies of Federal executive power do not adequately reflect the responsibilities and accountabilities of these bodies for implementing those components of the overall government work-program which fall within their remit. Thirdly, there is a concern over how effectively ministry level responsibilities and accountabilities are reflected in the responsibilities and accountabilities of directorates and departments within that ministry. Fourthly, there is a concern over the extent to which at the individual employee level their activity is focused on the key priorities for their directorate/department and their ministry overall. There is a suspicion that much of the effort of many civil servants is devoted towards tasks and activities which bear little if any relation to the key priorities of the government overall or of the individual ministry in question. While it is expected that many of these concerns will be addressed in the second stage of administrative NRP Page 23 September 13, 2004

24 reform, and partly also through the continuing implementation of the Program for Modernization of the Federal Civil Service, consideration could perhaps appropriately be given to approaches such as the following. Firstly, the Apparat of the Government (perhaps itself restructured into a Government Secretariat as outlined above) could play a broader role in ensuring that the outcomes desired from implementation of the Government s work-program are achieved through a significant upgrading of the monitoring and evaluation undertaken by the Apparat of the work of individual ministries/agencies. It is essential that this initiative not be confused with an attempt to extend further central control. In fact, over time, ministries should be delegated greater authority. Monitoring by the Apparat should be confined to the strategic level : i.e., ensuring that the anticipated policy outcomes of the government s priorities are being achieved. A similar strategic focus will emerge with respect to performance budgeting and the relationship between the Ministry of Finance and line ministries. Secondly, an integrated hierarchical system of performance management could be developed whereby key three-year and annual targets for each ministry/service/agency are formulated out of a disaggregation of the overall targets and priorities of the government s medium-term socio-economic program. Targets would then be developed for each directorate/department within the context of the ministry/service/agency-level targets. Finally, targets for individual employees and work groups would then be developed in the context of the directorate/department level targets. This performance management system would be fully integrated with the planned performance budgeting system. NRP Page 24 September 13, 2004

25 The system would also include the upgraded staff performance appraisal system being developed in the context of implementation of civil service reform as foreseen in the Law on the State Civil Service. This approach would also have implication for how job descriptions for individual civil servants are developed and updated to ensure that these continue to reflect current key priorities. This would also need to be integrated with the approach to developing administrative regulations and procedures (administrativnye reglamenty) for ministries/services/agencies. (4) Rebuild incentives, ethics and values Assuming appropriate structures, functions, systems and processes can all be put in place, underpinned by a system for performance management, the next task is to ensure that the civil servants who have to implement and give life to this framework have appropriate incentives, skills and values. At present, while there are notable exceptions throughout government, in many cases a public service ethos is either completely lacking or severely eroded; and in many areas there are significant skills shortages and mismatches arising out of severe recruitment and retention problems. One of the main priorities of the Program for Modernization of the Federal Civil Service is of course explicitly to address this issue. Excellent progress is being made to signal the change from a state service to a civil service; and to put in place the policy and legislative framework to support the creation and maintenance of an appropriate skills mix and an appropriate values and ethics base for civil servants, NRP Page 25 September 13, 2004

26 together with tougher monitoring and sanctions. Careful attention has been paid to seeking to rebuild the internal incentives and stimuli necessary to generate changes in vales and behavior on the part of Federal civil servants. Strong efforts are being made to secure implementation of the merit principle as the core building-block of the new state civil service and to move to a performance-based human resource management system. This in itself represents a fundamental reform, and it will require a few years before the changed values and behaviors are likely to be capable of being observed. At the same time, it could perhaps be appropriate to seek to accelerate progress in three areas linked to this agenda : pay reform; internal delegation; and management development and on-the-job training. Greater priority could perhaps be given to seeking to achieve a major rebuilding and strengthening of management and professional staff within the Federal civil service through more aggressive pay reform. Three problems need to be addressed. Firstly, pay levels in the Federal civil service are extremely compressed. At present in the Federal civil service the decompression ration for category 2 specialist to Deputy Minister is 1:3.7. Most OECD countries have ratios of between 1:7 to 1:20 to allow for recruitment and retention of sufficient qualified management and professional staff. Pay reform should include major decompression measures. Secondly, civil service pay for the Federal civil service in Moscow is not competitive with the private sector. NRP Page 26 September 13, 2004

27 Comparison of Total Compensation, Civil Service & Private Sector 7000 Total Compensation (USD per month) LS CS HOS HOD DM Civil Service Russian Orgs - Median Foreign Orgs - 25th %-ile Foreign Orgs - Median Benchmark Job Levels The results of a recent comparative pay and benefits survey of the Federal civil service and the private sector in Moscow showed that at Deputy Minister level total compensation in the private sector was 3 to 6 times higher. It is suggested that aggressive pay reform be pursued focusing on managerial levels. As an example, if pay increases of 45% were made over each of five years to Ministers, Deputy Ministers, and Top and Chief specialist grades, which would represent around a sixfold increase at the most senior levels, the wage bill would increase in year 5 to 0.33% of GDP compared to 0.29% in the baseline; the nominal wage bill would be 15.5% higher than in the baseline; and the total cost would be in the order of $100 million (based on 2001 data). The third issue in the area of pay reform relates to internal incentives and external perceptions. At present, for deputy ministers, the share of total cash (base pay plus NRP Page 27 September 13, 2004

28 cash allowances) in total compensation is around 40%; and the share of base pay in total cash is around 25%. It is suggested that as part of aggressive pay reform moves should also be made to monetize benefits, privileges and non-cash compensation; and to shift the balance from allowances to base pay, while making any remaining allowances dependent on performance. This would strengthen internal incentives toward strong performance. This would also potentially have some positive impact on external perceptions. At present the perception is that civil servants receive a host of perks, including access to fee/subsidized high-quality health care, education, rest and recreation, free utilities, greatly subsidized housing, free transport/car/driver, access to cheap food (and books). While the full package of such benefits is now received only by a small number of most senior public servants, public sensitivity to nomenklatura benefits remains strong. This is even further exacerbated by resentment at further privileges enjoyed by senior public officials (blue lights on their cars, special privileges and priority in driving). The opportunity afforded by radical pay reform should be taken to also clean up all these non-cash perks, benefits and privileges. Given monetization of non-cash benefits, senior civil servants should be expected to pay a market price for housing, health and education benefits. The facilities themselves should be opened up to all on a market basis. Privileges not compatible with the new image of a civil servant serving the public should be removed (e.g., blue lights). Finally the opportunity of radical pay reform must also be taken to draw a line under the acceptability of corruption on the part of senior civil servants; with this then cascaded down within the civil service. A compact needs to be made that given the NRP Page 28 September 13, 2004

29 pay reform, corruption will either now cease or be punished. Monitoring and sanctions need to be real and made to bite. Conflict of interest provisions would need to be tightened considerably. Links of public officials to private sector economic interests and internal lobbying and protection of such interests would need to be aggressively pursued and routed out. Meaningful declaration of personal and family assets and earnings would need to be enforced. Restrictions on senior public servants taking up positions in parts of the private sector related to their previous official activity would need to be put in place. Radical pay reform and the package of accompanying measures as set out above could lead to a major improvement in civil service capacity and values; and, in time, to a significant lessening of corruption and a gradual increase in public confidence in the civil service; and to increasing external pressures from enterprises and citizens for appropriate behavior on the part of civil servants. Moves could be undertaken in parallel with pay reform also to seek to achieve a significant delegation of real responsibility within the civil service. This represents a major opportunity to clear the time of Ministers and Deputy Ministers to focus on real strategic, policy, delivery and management issues. This would also represent a major culture change within the present civil service. The policy and legislative framework to support such a shift would be supported by the accountability framework provided by performance management and performance appraisal; and by administrative regulations and procedures; and by new job descriptions. The development of new electronic business processes and IT systems would allow such delegation of responsibility to be undertaken in a context of full transparency. Given the above, there is more than a good chance that this approach could be made to work. NRP Page 29 September 13, 2004

30 This would also make a major contribution to strengthening the effectiveness of civil service performance. Finally, if the significant investments foreseen in the recommendations above were indeed to be made, it would of course make it even more critically important to provide proper maintenance expenditures to support these significant investments in people and systems and processes through completing the envisaged major rebuilding of approaches to management development and on-the-job training in the civil service (including of course distance and electronic learning and delivery of such programs). (5) Strengthen transparency and external accountability The reform measures described above would need to be complemented by further measures targeted specifically at strengthening transparency, external accountability and external participation. The second round of functional reviews should lead to greater decentralization in service delivery which should strengthen the ability of service recipients to affect the service offer. The creation of executing agencies for service delivery should provide greater opportunities for clients of such services to express their requirements for these services, particularly when service provision is linked to external competition and competitive tendering. Good progress has already made to provide the policy and legislative base for transparency through the draft Access to Information Law. External monitoring (possibly by an NGO) should be encouraged to ensure that the provisions of the Law NRP Page 30 September 13, 2004

31 once enacted take effect and are applied as intended as quickly as possible. It would be reasonable to expect there to be a transitional period of one to two years while enterprises and citizens got used to their right to request information (although it is hoped that much information would anyway be available through government internet sites) and to exercising such a right; and while public officials got used to meeting such requests fully and expeditiously as required under the new legislation. The measures described above would also provide a good basis on which external accountability could be strengthened through the development of service standards; the publication of such service standards; the monitoring of actual performance against service standards; and the compilation of annual reports on actual performance against standards, both at the level of government overall, and of each individual ministry/agency. Additionally opportunities could be sought to give service users and stakeholders greater opportunity for direct participation in decisions on services affecting them directly. (6) Apply sufficient resources to secure accelerated implementation Securing appropriate development and implementation of the new Federal government structure and of the systems and processes required for the new structure to operate effectively will require significant investment. The set of reforms described above requires significant reform management capacity; and will require significant investments to cover the costs of undertaking the functional reviews and process re-engineering exercises and the development of IT approaches. NRP Page 31 September 13, 2004

32 Pay reform and upgrading the system for management development and civil service training also has potentially significant fiscal costs. Reasonable progress was made over 2003 in building up capacity to manage the program of administrative and civil service reforms with the creation of a Directorate for Administrative Reform in the Apparat of the Government; the creation of the Civil Service Directorate in the old Ministry of Economic Development and Trade; and the strengthening of the Civil Service Department of the old Ministry of Labor and Social Development. Maximum use was also being made of the Russian community of experts and academics through the tenders let under the Program for Modernization of the Federal Civil Service. The application of lessons and approaches from international experience is being supported through a number of major donor programs. Further attention could however be paid to processes of internal consultation and communications, including the restoration of a Civil Service Journal (hard copy and online version). As well as the annual report planned on progress in implementing the Program for Modernization of the Federal Civil Service, an overall annual report on the performance and effectiveness of the civil service could also be produced, submitted to the State Duma and widely disseminated to external stakeholders. It is clear however that just as certain aspects of the reform program could be accelerated, the financing of the reform program will also need to be increased. Part of this additional resourcing could be found through more effective integration of financing already provided to support training and IT developments. Part could be NRP Page 32 September 13, 2004

33 found through making increased investment in these reforms, perhaps through a Federal Fund for Federal Government Reform, which could seek to provide incentives for ministries/services/agencies to compete to go through reform measures and attain reform outcomes and thereby receive additional financing which could cover further IT investment and training and development. This could function perhaps in a way similar to the Regional Government Reform Fund for fiscal reform, which could be extended to cover also regional administrative and civil service reform. It should also be accepted that development and implementation of the program of reforms now being pursued will need to be pursued on an iterative basis. Implementation risk (capacity and financing constraints) will need to be mitigated. The reform team will need to be able to respond flexibly; and to quickly disseminate success stories and learn from the intended and unintended results of reform implementation. This could be facilitated through extensive use of pilots and experiments across the system. Seeking to stimulate the pursuit of similar reforms at the level of the subjects of the Federation and of the new municipalities will also represent a major challenge. Incentives and partnership arrangements will need to be developed to help stimulate such reforms. In time it could also prove appropriate to seek to extend the principles of the reforms to cover also key public sector service delivery areas such as education and health. Finally, a system and process for monitoring the outcomes of these reforms should also now be developed and put in place at the outset of reform implementation. NRP Page 33 September 13, 2004