A Prescription Rejected: Market Solutions toProblems of Public Sector Governance
PETER MUNK CHRISTIANSEN*
The New Public Management includes the idea of incorporating marketmechanisms in public sector governance. In the Danish case, marketreforms have scarcely been used; private sector supplies of public serviceshave not increased during the last decade. The lack of success of marketreform in Denmark is explained by the strong institutions of traditional public sector governance operating at the micro-level. Formal and informalhierarchy and formal and informal corporatism hold a strong grip on public
sector governance. The very decentralized structure of the Danish publicsector decreases the importance of central government in terms of reformstrategies. Strong interests and institutional constraints keep reforms in theDanish public sector within a hierarchical mode of governance.
During the 1980s, all Western countries experienced a wave of public sec-tor reforms. The headlines and ideological bases were strikingly similar inmost countries, but reforms were not the result of a grand design (Aucoin1991; Metcalfe 1993; Rouban 1993; 1993a; Pierre 1993). Although reforms
were pursued with varying enthusiasm under different conditions andwith different results, it has become common to talk about The New Public Management as a collection of ideas and practices that emphasize competi-tion between service providers, a new mix of state and market under theprovision of collectively financed services, decentralization, freedom of choice for citizens, and more responsive management, just to mentionsome of the more prominent keywords (Hood 1991b).
The Conservative–Liberal cabinet that came to power in Denmark in1982 marked a political and ideological break with the impressive public
sector growth over the previous two decades. During the 1980s, succes-sive minority cabinets, all led by Conservative PM Poul Schlüter, stayedpolitically committed to reducing the tax burden and to “modernizing”the public sector according to the so-called “Modernization Plan” of 1983 (Ministry of Finance 1983) and its successors. The plan primarilyparaphrased elements of reform from the New Public Managementwave, i.e. devolution of budgets, governance by the market, free choicefor consumers, changes in the financing of public services, increasedresponsiveness towards consumers, deregulation, better management,
and new technology. During the 1980s, local and regional governments,which control about two-thirds of Danish public consumption, alsoadopted a range of reform ideas consistent with the ideology of the NewPublic Management. In 1993, a Social Democrat-led majority cabinet
came to power. The ideological wrapping has changed, but so far themain elements of the reform strategy of the previous cabinets have not.It is almost a truism to say that public sector reform is a risky and
failure-prone endeavor. The interesting research objective is to link theinstitutional set-up with the content and consequences of reform. The dis-tribution of resources, powers, and available strategies between users,producers, bureaucrats, and politicians systematically affects the course of action in public sector reforms. This article takes its point of departure in aframework of analysis of the distribution of powers in traditional public
sector governance and shows that in the Danish case strong and enduringmicro-level institutions keep the vast majority of collectively financedpublic services production within a hierarchical mode of governance.Despite a broadly accepted reform rhetoric, public sector reform in Den-mark is more a history of continuity than of breaks.
This article assesses reform strategies of the last decade with respect totheir effectiveness in combatting problems of public sector governancewith special emphasis on the use of market mechanisms. It shows that thelack of success in introducing market mechanisms is due to the distribu-
tion of power imbedded in the hierarchical structure of governance. Thisarticle does not include reforms of public companies such as railways,telecommunications, and postal services.1
The article first introduces some of the core institutional constraints onthe choice of public sector reforms. It then provides an outline of somemajor problems in public sector governance and the policy responses tothese problems within the last 10–15 years. The capacity to manage overallpublic expenditures has been somewhat improved, but the capacity toaffect public sector efficiency has not really increased. The third section
assesses the introduction of market reforms, mainly those aiming at pri-vatizing the producer’s role. It shows that nothing has really happeneddespite political rhetoric in favor of contracting out. The last section on thepolitics of using the market shows how the strong institutions of formaland informal hierarchy and formal and informal corporatism have sys-tematically favored hierarchical modes of governance. The article thusargues that institutions at the micro-level are of decisive importance whenreforms in public sector governance are introduced and implemented.
THE INSTITUTIONS OF HIERARCHICAL GOVERNANCE
Based on recent rational institutionalist theory, the following brieflysketches the elements of a model that points to some core traits of hierar-chical governance. The model helps predict the outcomes of public sectorreforms.
Recent institutionalist theory is based on two fundamental claims. Indi-viduals are primarily self-interested and rational—although limited bycognitive capacity and uncertainty. The demands on rationality need not be very restrictive. In Ostrom’s words, we need only assume that actors
“. . . compare expected benefits and costs of action prior to adoptingstrategies for action” (1991, 243). It more or less follows from the assump-tion of self-interests that individuals are also opportunists. In William-son’s words, they are “. . . self-interest seeking with guile . . .” (1985, 47).Individuals are constrained by institutions which are formal and informalas well as rules and norms that guide individual behavior by prescriptionsand incentives. As a consequence, institutions provide individuals stabil-ity and predictability with regard to social behavior (Ostrom 1986; 1990;1991; Shepsle 1989; North 1990). At the same time, institutions reflect the
power of the actors who established them. Institutions are established tosatisfy individual needs, not social well-being (Knight 1992, passim;North 1990, 48; Geddes 1995). Thus, institutions are biased in favor of some actors and in disfavor of others. Institutions are also objects of strate-gic action from individuals in pursuit of distributive advantages (Knight1992). Powerful actors may take advantage of a situation to change institu-tions in their own favor—if the payoff is positive.
Traditional public sector governance is said to be structured by fourtypes of institutions: formal and informal political and bureaucratic gov-
ernance, referred to as formal and informal hierarchy and formal andinformal corporatism.2
Formal hierarchy is the conditio sine qua non of public sector governance.It is also the archetypal mode of traditional public sector governance(Walsh 1995, 12). Hierarchy is a perfect institution for maintaining politi-cal control over bureaucracy, for securing bureaucratic responsivenessand accountability vis-à-vis the political principal, and for making deci-sions that are transparent and predictable vis-à-vis the citizens. In thisideal world of perfect “parliamentary governance” (Olsen 1978, 22ff),
politicians have unlimited power—through the budget and the authorityto issue general rules and concrete orders—to command bureaucrats andpublic service producers. The distribution of power embedded in hierar-chical governance fully suits democratic ideology.
In the real world, political principals confront a number of seriousproblems. Viewed through the glasses of economic organization theory,the basic question is how the principal can assure that the agent will do his job efficiently and in accordance with politically set rules (Moe 1984,756ff). The principal always confronts the risk of agent shirking. Rational,
maximizing agents may exploit the free zones of control to do their jobs inother ways than demanded by the principals (Moe 1984; 1989; Williamson1985; North 1990, 32). Even without other institutional constraints, politi-cal principals would confront serious control problems vis-à-vis publicsector agents in a pure, hierarchical structure of governance.
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 275
Organization theory on the principal–agent relation assumes that theprincipal wants the agent to do a job as efficiently as possible (Moe 1984;Williamson 1975), i.e., at the lowest possible costs given a defined quality.That may be a fruitful analytical point of departure in some cases. If
related to public sector governance, the preferences of the political princi-pal may be much more complex. Politicians want to be reelected, to be“visible,” to increase personal status and power, to realize their party pro-gram, to have “peace and order,” etc. All of these preferences may be inaccordance with the wish to provide citizens with the “best and cheapest”public services. However, they may also contradict the pursuit of eco-nomic efficiency. Although it is impossible to summarize the preferencesof politicians in one single set of well-ordered preferences, it may be ana-lytically useful to assume that politicians maximize control and authority
(J. Christensen 1996; Nørgaard 1997). These preferences can be satisfiednot only through the institution of formal hierarchy but also through theinstitution of informal hierarchy.
Traditional hierarchical governance implies a top-down chain of com-mand. The institution of informal hierarchy to some extent reverses theinstitution of formal hierarchy. In traditional public sector governance,service-producing organizations are hierarchically integrated with thepolitical and administrative levels. This gives individuals and groups thatrepresent public service producers easy access to politicians and bureau-
crats in order to create, maintain, or increase distributive advantages or toavoid deterioration of existing arrangements. The lack of separation between demander and provider makes the provider the holder of possi- bilities of political and administrative intervention that are not availableor at least significantly less available in a contractual mode of governance.At the same time, informal hierarchy gives politicians the opportunity tointervene in large and small matters as part of their strategy to maximizecontrol and authority. The institution of informal hierarchy thus trans-forms hierarchical relations into governance relations based on power,
bargaining relations, and coalition building between public service pro-viders and politicians.
Even if politicians were only constrained by the institutions of formaland informal hierarchy they would have a big job to do. The governanceof public service production is further complicated by two additional andrelated institutions. One is the institution of formal corporatism. Formal cor-poratism adds unions and union representatives to the set of actors occu-pied with public sector governance. The core role played by unions withinthe institution of formal corporatism is collective bargaining which pro-
duces authoritative decisions that are highly relevant for public sectorgovernance (Chubb and Moe 1990; J.G. Christensen 1994). For example,collective agreements regulate working hours, wages, the rights andduties of employers and employees and the procedures of conflictsettlement.
Closely related to formal corporatism is informal corporatism whichstructures the involvement of unions and union representatives in strate-gic as well as day-to-day matters. Typically, informal corporatism pre-scribes managers to involve union representatives, also when it is not
formally required (J.G. Christensen 1994). Seen from the standpoint of politicians and bureaucrats, managers may involve themselves in verystrong coalitions with public sector employees in the pursuit of distribu-tive advantages. Contrary to Dunleavy’s bureau shaping theory (1991,174), in which rational managers only face weak constraints from withinthe delivering bureau, strong informal corporatist institutions may putvery strong constraints on bureau leaders and thus subsequently on politi-cians and bureaucrats. Since the competitiveness of the individual pro-duction units is never tested in a competitive environment, unions and
employees may develop a very strong grip on management. The institu-tion of informal corporatism is related to the institution of informal hierar-chy. Informal contacts with politicians, parties, and bureaucrats enableunions and public sector employees to build coalitions with importantpolitical-bureaucratic actors.
By definition, the introduction of markets into public sector governance breaks the institution of hierarchical governance. Hierarchy is replaced bycontract (Williamson 1975; 1985; Walsh 1995). In collectively financedservice provision, the political principal still has to define the services
demanded in terms of kind, quantity, and quality. However, when thecontract has been entered, the only political administrative task remainingis surveillance and control of contracts. As long as the delivering agentsticks to the contract, hierarchical powers cannot intervene in operationalmatters. A major benefit seen from the viewpoint of the political principalis that contractual governance, when true competition is present, reducesthe problem of slack. Additionally, the political level is relieved of anumber of operational questions to be politicized. As a consequence, theinstitution of informal hierarchy is also significantly weakened in contrac-
tual arrangements. Seen from the viewpoint of the delivering organiza-tion, contractual governance has significant impacts on formal andinformal corporatism. If monopoly is part of the strength of unions andemployees through formal and informal corporatist institutions in tradi-tional public sector organizations, the exposure to competitive pressureswill reduce, but not abolish, the strength of unions and employees. Par-ticularly, it will be much more difficult to accumulate slack in the sameway as organizations in non-competitive environments. As competitivepressures are supposed to strengthen management of the delivering insti-
tution, informal corporatism as a means of enhancing the interests of unions and employees is also weakened.
In sum, the institutions of traditional public sector governance makethe suppliers of public services very powerful. The monopoly position (LeGrand 1987; Kristensen 1987b) of the supplier and the integration of demander and supplier (Walsh 1995; Savas 1982) through formal and
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 277
informal hierarchy strongly reduce the chances that reforms that are not inaccordance with the interests of suppliers will succeed. Even if politiciansare not powerless (Miller and Moe 1983), formal hierarchical governanceis easily undermined by the institutions of informal hierarchy and formal
and informal corporatism. The power to command, monitor, and controlis transformed into bargaining relations, and consequently the suppliersof public services have a firm grip on the ways and means of public serv-ice provision and thus also on how reforms are formulated and carriedthrough. The introduction of market mechanisms, when successful, breaks with some of the core institutions of hierarchical governance. Sinceinstitutions somehow reflect the power of the actors who establishedthem, significant institutional changes must depend on a relative changeof power between powerful actors or on a changing outcome of institu-
tions which no longer satisfy the interests of dominant actors (Knight1992, 145, 183).The institutional approach outlined above can be applied at any level of
government. In all Western countries government is to some extentdivided between a central and a regional and/or local level. The institu-tions governing central–local relations are important for the chances of suc-cess when central government imposes reforms at the local and regionallevels. If local and regional self-governance is strong, for instance as meas-ured by the functions of local and regional government, and the discretion
in performing these functions (Page 1991, 13), the potential of central gov-ernment to impose specific reforms on local and regional governments isreduced. As a consequence, we must expect to find greater variation in thestructure of public sector organizations between different local govern-ments. If local and regional self-governance is weak, the chance of successof centrally set reforms increases. Nevertheless, the institutions that oper-ate at the micro-level may be significantly more important in predictingthe success of reforms compared to macro-level institutions.
PROBLEMS OF PUBLIC SECTOR MANAGEMENT
In general, the history of Danish public expenditure growth is not differ-ent from that of other Northern European countries, except that the Danesseem to be extreme. As late as 1960, the Danish public sector, measured bypublic expenditure as a percentage of GDP, was well below the average of the OECD countries, but growth was tremendous in the following twodecades. From a position below average in 1960 (24.8% of GDP), publicexpenditure in Denmark, Holland, and Sweden began to depart from that
of the rest of the OECD by the mid-1970s. By 1980 (Denmark: 56.9% of GDP), the three countries had established public expenditure levels sig-nificantly above the OECD average (Andersen and Christiansen 1991, 28).Ten years later, these differences remain, although some of the otherNorthern European countries are catching up with the three leaders.
It is no wonder that by the end of the 1970s, the size of public expendi-ture and the tax burden was subject to serious political concern andreform in all Western countries (Aucoin 1991; Hood 1991a). In Denmark,the concern for public spending and the tax burden grew as the pressure
on Danish public spending became immense during the second half of the1970s. From 1979 through 1982, public budgets more or less went out of control, along with severe structural problems related to the balance of payments, unemployment, and inflation. In 1982, the public deficit wasclose to 10% of GDP. In other words, the stage was set for the Conserva-tive–Liberal cabinet coming to power in 1982. The reduction of expensesand taxes alongside with a “modernization” of the public sector wereamong the major goals of the new cabinet. The following briefly reviewsreform measures and their effects on three problems of public sector gov-
ernance: the management of the overall level of public spending, the man-agement of budgetary allocations, and the management of efficiency inpublic service production.
A major state budgeting reform was carried through in 1984. Thereform was in line with the development of Danish state budgeting sincethe 1960s, based on budgetary frameworks, but the means to control over-all spending were tougher. Frameworks were introduced to cover all pub-lic expenditures—earlier they had only covered operational expendituresand investments. Total state expenditures were to be kept within a limit
set by the 1984 level, so that future spending could not exceed the 1984level in fixed DKK, except for expenditures caused by the economic cycle.Each minister was to keep net spending within centrally set limits (Chris-tensen 1992). Local government was to operate under the same overallrestrictions, supported by annual agreements between the state and theNational Association of Local Authorities and the Association of Coun-ties. However, with two thirds of all consumption expenditure spent bylocal and regional governments, coordination of overall spending is animportant part of central-local relations.
Looking at the overall composition of public expenditures in Table 1, itis surprising that consumption expenditures were kept at an almost zerogrowth level from 1986 through 1992. That is in itself an impressive result,keeping in mind that public choice theories of public expendituresemphasize the strong supply-side pressure connected with consumptionexpenditures (Kristensen 1980). The problems of managing total publicspending in the 1980s were clearly connected with transfers and withinterests paid on mainly state debt.
The reform was successful with respect to reducing the growth rate of
public expenditures compared to the growth rate in the previous decade.However, as shown in Table 1, public expenditures began to grow rapidlyafter 1986. The reason was partly the long economic recession from 1987and onwards and partly that the weak Conservative–Liberal cabinetscould not withstand the pressure from the opposition. The budgetary sys-tem was simply not strong enough to keep down demands on
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 279
expenditure (Christensen 1992; Christiansen 1990). Despite a heavy politi-cal interest in keeping total expenditure and the tax burden down, publicexpenditure grew by one-third in fixed prices during the 1980s. Between
1984 and 1992, the years in which the cabinets stuck to the principle of zero growth, total spending went up by 14% in real terms.If management of total public expenditures was a relative success, it
proved more difficult to pursue budgetary reallocations. The problem is basically the degree of immobilism in the budget and in the budgetingprocess (Caiden 1990). Politicians face a number of institutional con-straints when they choose between different purposes or providers. Publicsector organizations, and to a large extent also their “customers,” havestrong incentives to abate any reduction of their budget. In the bilateral
monopoly situation of traditional public sector governance, they also havegood chances of success.The Danish welfare state is, like the Swedish, characterized by a very
high level of public consumption. In 1993, consumption made up 33.6% of GDP at factor prices in Denmark, or 43% of all public expenditures, and31.2% in Sweden. The level is significantly lower in other Northern
280 PETER MUNK CHRISTIANSEN
Table 1EXPENDITURE OF GENERAL GOVERNMENT
1IN DENMARK 1980–1992,
INDEX IN FIXED PRICES (1980 = 100), PERCENT OF GDP AT FACTORPRICES AND BILLION DKK IN CURRENT PRICES
Consumption in per-cent of totalexpenditure 51 49 44 44 45 44 43 42
1. Excluding capital outlays.2. In 1994, almost all non-taxable income transfers to households were made taxable. Trans-fers were increased in order to have a neutral effect on the net income of the receiver. The
net effect on public transfers was a DKK 19 billion increase. Without this increase, totalpublic expenditures as percent of GDP at factor prices would have been “only” 68.0.Source: Statistisk Tiårsoversigt, 1990, Statistiske Efterretninger. Nationalregnskab, offentlige finan-ser og betalingsbalance, 1994, 1; 1995, 22.
European countries: consumption expenditures in Norway are 24.1%;Germany 20.5%; France 22.6%; and Great Britain 26.0% (OECD 1996).3 TheDanish and Swedish deviation mainly stems from high levels of socialservices and education. On top of a comparatively high level of consump-
tion expenditures, Denmark and Sweden tend to have a higher degree of “self-sufficiency” (OECD 1993), i.e. public services are produced with arelatively low level of acquisitions from the private sector.
Two examples illustrate the problems of budgetary reallocations evenwhen changes in “demand” are relatively clear. The number of children inpublic schools in Denmark fell from 722,500 in 1980 to 566,100 in 1990, adrop of 22%. During the same period, the number of students in highereducation organizations increased by 20%. However, the relative distribu-tion of expenditure in the education sector only changed incrementally.
During most of the 1980s, productivity in primary schools dropped sig-nificantly. Despite an improvement in the ability of local authorities toadjust resources to the number of pupils during the late 1980s, adjust-ments of resources were significantly less than proportional to the drop inthe number of school children (Andersen and Christiansen 1991, 123ff.).
Another example is psychiatric hospitals. From 1976 through 1990, thenumber of beds in psychiatric hospitals was reduced by 40%. A similartrend is found in many other OECD countries, based on the idea that somepsychiatric patients might better be treated outside the hospitals. The
reduction in the number of beds was followed by growth in a number of other services and treatment facilities. The budgetary precondition wasthat the change in psychiatric services should be kept within the limits set by the original budgets; no extra resources could be allocated to the psy-chiatric system. Things did not turn out that way. Money did not followchanging priorities. Contrary to popular belief, resources in the psychiat-ric hospitals grew by 7% in fixed prices from 1976 through 1990. In thesame period, total resources for psychiatric treatment grew by 46% infixed prices (Andersen and Christiansen 1991, 120).
Attempts to change the order of priorities are met by strong oppositionfrom those who are negatively affected by such changes. Due to the asym-metrical distribution of incentives in those situations, the chance of suc-cess in the pursuit of a cutter’s strategy is low except for situations withhigh fiscal scarcity. The explanatory power of the asymmetrical distribu-tion of inducements and power in the budgetary process is particularlyprominent in the case of proposals for budget reductions (Christiansen1990). In sum, with the possible exception of serious budgetary con-straints, Danish public expenditures are generally relatively immune to
changes from the “demand” side.Problems are even bigger when it comes to affecting the internal pro-
duction process in terms of quality and efficiency of traditional public sec-tor production. Efforts aimed at affecting the efficiency of collectivelyfinanced and hierarchically controlled service production are constrained by the very core institutional characteristics of exactly that type of
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 281
production. Hierarchically organized service production is never tested by market conditions. The lack of possibilities to test efficiency increasesthe problem of information asymmetry involved in any principal-agentrelation. As well, the institutions of informal hierarchy and informal cor-
poratism increase the possibilities of effectively combating or at leastreducing the effects of efficiency enhancing reforms.The major approach to reforms at the level of the individual organiza-
tion in Denmark has been the introduction of devolving budgets (Chris-tensen 1992; Christiansen 1996). At the state level, the reform was carriedthrough in the years following the 1984 budgetary reform. Municipalitiesand counties in practice introduced the same overall type of budgetarysystem, although they are not constrained by state regulations in theirchoice of governance system vis-à-vis the individual production unit.
Devolution of budgets increases the degrees of freedom at the manageriallevel. Budgets are less detailed, and managers in most cases have theoption to transfer items within the budget and to transfer surpluses anddeficits to the next budget year. In some sectors, other measures wereadded to the devolution of budgets. In higher education, appropriationshave gradually become closely related to the number of students whocomplete a year of study—in some areas also with a free choice of enroll-ment in order to approach a quasi-market mode of governance (Bartlett1993). In nurseries, kindergartens, and primary and secondary schools,
the devolution of budgets has been followed by the introduction of boardsfor each unit of production, in most cases with a majority of users (par-ents) and with varying competences.
Even if it is a reasonable idea that money is spent more efficiently byactors who are professionally involved in service production than by dis-tant politicians and bureaucrats, devolution of budgets has had no or onlymodest effects in terms of significantly affecting efficiency. The introduc-tion of devolved budgets does not present any strong inducements to pro-duce cheaper or better. Budgetary frames are most often based on existing
appropriations, so that productivity basically remains the same as beforethe introduction of devolving budgets. Budgetary frames are furtherweakened by the possibilities of getting further appropriations, by keep-ing the budget but lowering output, etc. (Christensen 1992). The devolu-tion of budgets does have major advantages: when managed with“firmness,” budgetary frames reduce uncertainty at the political levelwith respect to unpleasant budgetary developments in the finance year.When frames are further related to output, the problem of adapting the budget to lower levels of output is eased if service producers are not suc-
cessful in bargaining for further appropriations.It has consistently been part of the rhetoric that devolution of budgets
should be followed by specific targets. Governance through “targets andframes” was the catchword for many years (Ministry of Finance 1983;1993). The idea of setting goals which could be seen as a quid pro quo dealin exchange for increased degrees of freedom has proved extremely
vulnerable as a measure of affecting the quality and quantity of produc-tion. Many or most public organizations have many and vague goals(Walsh 1995) which can only rarely be the basis of constructing and usingprescriptive targets (Christiansen 1996).
Although productivity in public service provision has changed dur-ing the last 15 years, there is no overall indication that productivity hasincreased. In 1993 the National Audit Department evaluated the “Mod-ernization Program” mentioned above. As regards economic manage-ment, the conclusion was that the program itself did not promotechanges in economic management. In 1988-89, an annual 2.5% reductionin state budgets from 1988/1989 and onwards was implemented (Rigs-revisionen 1993).
In sum, major Danish public sector reforms have stayed within the tra-
ditional governance structure of hierarchy. Reforms have primarilyfocused on “low-powered” incentives (Williamson 1985, 131). Some butnot many results have been reached in terms of managing overall spend-ing, but in terms of allocation of resources and in terms of efficiency,results have been modest.
USING THE MARKET IN MANAGING THE PUBLIC SECTOR
If traditional hierarchical reforms primarily imply “low-powered” incen-
tives, market governance reforms rely on “high-powered” incentives (Wil-liamson 1985, 131). According to the reform literature of the last decade ormore, the major advantage of the market is its effects on allocatory andX-efficiency through the introduction of competitive pressures on monop-oly producers (Walsh 1995; Kettl 1993; Chubb and Moe 1990). Competitionsqueezes slack out of slacky organizations.
Markets or semi-markets may be introduced on the demand sidethrough the free choice of consumers, or on the supply-side through theintroduction of competition, or in a combination of the two. Here, we
restrict the object to competition on the supply side. The focus on supplyside competition has at least one important advantage: privatization of theproducer’s role does not affect distributive considerations related to theconsumers (since services are still tax financed) or community considera-tions, as might be the case following a voucher system (Hirschman 1970,101; Bartlett 1993).
In some cases, hierarchical governance is more efficient than a contrac-tual arrangement due to high transaction costs of contracts. In the case of services produced with a low frequency of transactions and with a high
degree of specificity, Williamson (1975; 1985) expects the rational principalto prefer a hierarchical arrangement. Another problem is that when thegoods demanded are suited for a contractual arrangement, imperfectcompetition can be a serious impediment to realizing the benefits of con-tracts (Kettl 1993). As shown by Milne (1993), it takes time for markets to
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 283
develop in response to increased public sector outsourcing. Exploitationof market forces presupposes that market forces are actually at work.
Contracts are not free. Contractual arrangements imply ex ante costs of drafting, negotiating, and safeguarding as well as ex post costs related to
things that went wrong in the contractual relationship (Williamson 1985,20–22). Another problem is that contractual institutions may have unin-tended effects. In the real world, some actors, the “losers” will build inimpediments to the smooth functioning of market governance (Moe 1989).Thus, the traditional skepticism towards promises of reorganizationshould also be alert in relation to the use of market solutions (Meier 1980;March and Olsen 1984).
Even with all these reservations, there is hardly any doubt that a well-planned and intelligent use of different types of market mechanisms
might contribute to a more “correct” price/quality ratio and to easing thepolitical level from some of the constraints following the tight relations between the political and the operational levels in the traditional publicsector model. Put bluntly, the use of market mechanisms will potentiallyincrease the power of the political level vis-à-vis the producers.
Experience shows that in general, but not always, significant costreductions will follow the introduction of contractual relations (Stein1990; Walsh 1995, 222; Domberger and Hall 1996; Ministry of Finance1991a). Most of the empirical evidence concerns relatively simple serv-
ices for which markets are well established. Even in the case of socialservices, such as elder care, Swedish experiences show significant costreductions coupled with a marked increase in quality (Bengtsson andRønnow 1996).
Private producers have been used in the provision of welfare services formany years: a little more than 10% of all Danish school children at the pri-mary level attend private schools.4 The primary level of the health system—general as well as specialized practitioners—is private, but almost 100% ispublicly financed, whereas the secondary level is almost exclusively public.
In social services, a number of specialized organizations are private, work-ing under a contract with municipalities or counties such as fire and ambu-lance services, construction works, a number of cultural organizations and,of course, a number of supporting services such as cleaning, building main-tenance, and computer services.
In many cases private producers are not exposed to competitive pres-sures. In the case of private providers in education, health, social services,and fire and ambulance services, price, quality, and quantities are set bynegotiations. The reason for choosing private producers is found in spe-
cific historical circumstances and the path dependence of institutionsrather than in the wish to comply with the prescription of competition. Forinstance, fire protection and water purifying plants are both technicaltasks with a marked political attention (at least when things go wrong).The first service is, in the Danish case, mainly run by one private firm, thesecond almost exclusively by the municipalities. The explanation of the
different ways of organizing the two tasks might be that they were startedat different times when different institutional forces were at work: fire pro-tection in a period with a small public sector, and water purifying plantsin a period with an immense public sector growth. In the case of technical
services, cleaning, building maintenance, and construction, there is sometradition of contracting out.Increased use of market mechanisms was part of the program of Con-
servative–Liberal cabinets from 1982 until 1993, although with varyingdegrees of clearness and firmness. Perhaps because the general ideas werevague and hard to oppose, the “Modernization Plan” of 1983 receivedsympathetic attention with regard to the general idea of modernization, but the parts on privatization and outsourcing were met with hard attacksfrom the opposition.5 The idea of market orientation was revitalized again
by the end of the 1980s (Ministry of Finance 1991a). At the same time, thelevel of politicization in using the market in the management of publicservices had seemingly decreased. The principle of “best and cheapest”was endorsed by the National Association of Local Authorities. Even theopposition in Parliament approved the strategy in principle. The newmajority cabinet that came to power in 1993, led by the Social Democrats,adopted the strategies of the previous cabinet, at least in rhetoric (Ministryof Finance 1993), although less emphasized and, seemingly, not seriouslypursued. Using the market to supply collectively financed services is nev-
ertheless highly controversial.The empirical evidence on the use of private suppliers under competi-
tive forces is not optimal. The best clue is given in Table 2 which coverspublic sector acquisitions of services and construction irrespective of theinstitutional arrangement. Table 2 thus includes non-competitive procure-ment. Despite these deficiencies, there are good reasons to assume that thedevelopment over time is fully comparable. Despite the widely acceptedrhetoric on the use of the market, outsourcing, etc., nothing has actuallyhappened since the mid-1980s. The acquisition of private deliveries by
municipalities and counties fell slightly from the mid-1980s and roseagain to the level of that of a decade ago (fully comparable data for thewhole period is not available for state expenditure). In construction, pri-vate procurement has been high for the whole period with some increaselate in the period.
A special survey on cleaning shows that even in this simple service forwhich market competition is high, the use of private firms has notincreased in the last 20 years (Offentlig & Privat 1995). A recent survey onnew cases of public sector outsourcing shows that from January 1994
through June 1996, only 39 cases were found in all 275 municipalities and14 counties. The total value of these contracts was DKK 300 million or0.15% of total operating costs of municipalities and counties (PLS-Consult1997). With regard to acquisitions from state organizations, it is not possi- ble to compare the development before and after 1990. Some increase inprivate sector acquisitions may have occurred.
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 285
In sum, the level of competition in the provision of public services islow, and nothing—or very little—has happened over the last decade,when competition became part of the official reform ideology. The findingof lack of competition in the Danish public sector corresponds to otherfindings on Denmark (Schwartz 1994).
THE POLITICS OF USING THE MARKET
Managerial questions of public organization have seldom been “high poli-tics” in Denmark. The devolution of budgets pursued during the last10-12 years was never widely discussed. However, the introduction of market mechanisms is typically controversial and highly politicized.Non-hierarchical means of governance fundamentally challenge the insti-tutions of hierarchical governance. Since we expect institutions in one wayor another to reflect the powers of the actors who established them, wehave to look carefully at how the interests of powerful actors are affected
through non-hierarchical structures of governance.The interests affected are roughly outlined in Table 3. The supply-side
market models suggest a potential conflict between public producers andthe taxpayers,6 whereas demand-side models, included for the sake of completeness, expose potential conflicts between users and taxpayers onone side and producers on the other. As producers have strong vested
286 PETER MUNK CHRISTIANSEN
Table 2ACQUISITIONS OF SERVICES AND CONSTRUCTION FROM THEPRIVATE SECTOR AS A PERCENTAGE OF PUBLIC SECTOR OPERATINGCOSTS AND CONSTRUCTION COSTS, 1985–1990
1. Cannot be compared with the previous period due to changes in statistical accounting.Sources: Ministry of Finance 1991b; Ministry of Finance and Ministry of the Interior 1995;Statistiske efterretninger 1993, 11; 1995, 13; 1996, 13.
interests in existing structures, they will combat the introduction of con-tractual governance. Due to the asymmetrical nature of public spendingdecisions, producers have strong incentives and often strong positions to be successful when core interests are challenged. The strategy of opposi-tion is often a combination of denying that a productivity problem exists,involvement of the press, parties, and politicians in campaigns against theproposed measure, and, as a possible last resort strategy, strikes.
Just to take one example: a proposed outsourcing of part of the cleaningservice at the National Hospital in Copenhagen7 (Rigshospitalet) becamea national issue. In 1990, two small contracts were outsourced. When it became clear that the management would give the contract to a privatefirm, a three-week strike, including the cleaning personnel as well as othergroups at the hospital, broke out. At one point, 900 persons were involvedin the strike. In 1992, a large assignment was contracted out. That contractwas also lost by the in-house producers. A strike was started but quickly
abandoned and transformed into other actions, of which a dramaticincrease in sick days was the most visible. According to P. Christensen(1994), the powerful, but in the end fruitless, opposition to the contractswas due to heavy support from other groups at the hospital who wereafraid that more tasks would be outsourced. It should be added that atother hospitals, cleaning had been contracted out for decades. These
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 287
Table 3BENEFITS/WINNERS AND COSTS/LOSERS BY TYPEOF MARKET MECHANISM
Organizational model Benefits/Winners Costs/Losers
Supply-side market: Out-sourcing and internalcontracts
More efficient produc-ers/taxpayers
More competition betweenproducers/presentproducers
Strengthening of manage-ment at operationallevel/management
Reduced political influ-ence to trade unions/tradeunions
Increased markets for pri-vate firms/private firms
Fewer public sectoremployees/presentemployees
Reduced political over-load/politicians
Less operational influenceto politicians/politicians
Demand-side market:Free choice, vouchers
More influence to users/users
Less influence to politi-cians/politicians
Quality exposed/users Increased competition between producers/pro-ducers up till now
examples show that outsourcing is controversial, but can be pursued suc-cessfully in some cases. Such cases, however, also signal to politicians thatone of their preferences may be violated through outsourcing; the politicalpreference for “peace and order” is challenged when contractual govern-
ance is introduced.The literature on the politics of privatization of the producer’s roletraditionally emphasizes the potential costs for the direct producers(Kristensen 1980). Table 3 points to two more core actors that areaffected by shifts in governance structures. Trade unions are negativelyaffected by contractual arrangements. Competitive pressures increasemanagerial power. Increased hierarchical power at the delivery levelwill most often be at the expense of trade union power. The institutionof informal corporatism is threatened in contractual governance. Formal
corporatism is not challenged to the same degree. Even more negativelyaffected by contractual governance is the possibility of unions of pursu-ing distributive advantages through the institution of informal hierar-chy. In a contractual arrangement it is much more difficult to makeinformal contacts with political and administrative actors in a legitimateway. To the extent that informal hierarchy has been part of a strategy forunions to protect their interests, this strategy is severely constrained bycontractual governance.
Danish public sector unions are very strong. Although there is some
uncertainty about the number, it can be assumed that around 90% of all pub-lic sector employees are members of a union (Due et al. 1994). The relations between unions and public sector employers are characterized by a highdegree of formalization and institutionalization. Union representatives havea strong formal and informal position at the level of the individual produc-ing organization. The preference for consensual decision-making is part of the strength of public sector unions in the governance of the public sector. Inthe traditional integrated model, formal as well as informal corporatism isvery strong. On top of protecting the interests of their members, trade
unions have their own institutional interests to pursue. Control and author-ity maximizing union leaders have a lot to lose from having more or less cutoff the institution of informal corporatism.
The second group of actors that are affected strongly by the shift fromhierarchical to contractual governance is the politicians. Table 3 showspoliticians as both winners and losers. As argued above, politicians have aplurality of preferences. All things being equal, they must be presumed toprefer service deliverance at the lowest possible costs, which means thatthey act as principals in economic organization theory. Maximizing this
preference would make them prefer contractual governance if contractscould be argued to minimize the sum of production and transaction costs.Competitive contracting would help politicians overcome part of the con-trol problem inherited in hierarchical governance, and it would reduce thepotential overload at the political level following hierarchical organiza-tion of service production. Separating the political and the operational
level would enable cognitively limited politicians to devote more interestto overall policy questions. However, as argued above, politicians are alsoassumed to maximize control and authority. Control and authority maxi-mizers may not prefer contractual governance since it denies them some
possibilities of intervention through formal as well as informal hierarchy.Furthermore, to the extent that the pursuit of contractual governanceimplies an increased level of conflict, the balance is tipped in favor of hier-archical governance. Altogether, the preference for control and authorityand for peace and order seems to outweigh the preference for cost minimi-zation. On several occasions politicians, independent of party affiliation,seemed to prefer hierarchical organization to contract relations. Politiciansprefer to include the many nitty-gritty questions of operational matters intheir job. Add to this the political costs of transforming management from
hierarchy to contracts. A survey on outsourcing in which city directorswere asked what kind of barriers they had experienced in using contractssupports the strong emphasis put on the maximization of control andauthority. Of 17 barriers, the one most often mentioned (by 45%) was thatthe city council had decided the task in question should be produced byits own employees (PLS–Consult 1992).
The politics of using the market under the provision of collectivelyfinanced services is characterized by producer groups with strong incen-tives to combat the use of the market; politicians whose preferences
toward the use of outsourcing are ambiguous but altogether in favor of hierarchical governance and users and taxpayers with only indirect influ-ence. This constellation of interests, powers, and conflicts is not in princi-ple different in Denmark and other countries with a large public sector, but, as mentioned in the introductory section, the introduction of marketmechanisms seems to be less successful in Denmark compared with anumber of otherwise similar countries. Against this background, it is of interest to pick up more systematic explanations of success or failure inthe Danish case.
EXPLAINING THE LACK OF SUCCESS IN USING THE MARKET
The model outlined above stresses the importance of institutions at themicro level: the success of reforms depend mainly on the institution’smanagement, formal and informal hierarchy and formal and informal cor-poratism, which allocates positions of power to different actors at thedelivery level of the public sector. This does not mean that other types of variables are unimportant in explaining the outcome of public sector
reforms. In order to validate the importance of institutions at the micro-level, the following discusses some of the possible macro-explanations forthe lack of success in increasing the use of contractual arrangements inpublic sector governance.
One important macro-explanation may be the strength and prefer-ences of the government. Metcalfe (1993) points to the parliamentary
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 289
strength of the Conservative Party as one precondition for the success of British cabinets in the pursuit of reforms during the Thatcher period.For the last two decades, Danish cabinets have generally been weak andwithout a stable majority in Parliament. They have been based on the
consent of the small center parties, so engaging in controversial reformswas dangerous for the life of the successive cabinets. The Social Demo-cratic Party has always been hesitant toward or directly against the useof outsourcing and other “tough” reform measures. The resistance iseven more pronounced by parties to the left of the Social DemocraticParty. The parties in favor of outsourcing have traditionally been theLiberal and Conservative parties. However, as shown in Table 2, theeffects of the Liberal–Conservative coalition governments from 1982through 1993 on the level of acquisitions from the private sector are
barely recognizable at the state level.However, in the Danish public sector the strength of the cabinet is of relatively modest importance in terms of affecting public sector organiza-tion. As mentioned, about two-thirds of public consumption is producedat regional and local levels. In most areas, state regulation of service sup-plies does not interfere with the organization of service production, atleast not when it comes to the question of public versus private producersor competition between public producers. Any attempt to regulate, forinstance, the use of contracts with private firms at the local level would
have challenged the important but vaguely formulated principle of localself-governance, and it would have increased the level of conflict in Parlia-ment. This leaves us with the lion’s share of public services outside of thereach of the central level in terms of basic organization. With 275 munici-palities and 14 counties, one would guess that the Danish public sectorreveals a great variation in terms of organization. That is not so. Similari-ties in terms of the organization of service production across the bounda-ries of counties and municipalities are more striking than differences,although differences have increased during the last decade. In the major-
ity of cases, traditional hierarchically organized public service productionis the way of organizing service delivery. Two variables might influencethe use of contracts.
To what extent is the propensity to enter contractual governanceexplained by the preferences of the governing party? Christensen andPallesen (1997) show that it cannot be sustained and there are systematicdifferences between the level of private sector acquisitions among munici-palities governed by the Social Democratic Party and municipalities gov-erned by the Liberal Party. This is in accordance with the general
observation of Danish local and regional politics as not being dominatedmuch by party politics.
May the economic constraints on the relevant authority affect the pro-pensity to pursue reforms involving contracting out? Mouritzen (1991)shows that in Danish local governments, power is shifted in favor of thepolitical level as opposed to the delivering level when the level of fiscal
stress increases. In order to cope with economic scarcity, it would be aneconomically feasible strategy to include contracting out among the set of measures considered by the municipal councils. The transforming mecha-nism would be that the governing majority in local and regional govern-
ments is punished by the voters in case of a bad or worsened municipaleconomy. However, there are many possible political responses to eco-nomic scarcity, including general and specific budgetary cuts. In a situa-tion already characterized by stress and potential conflicts, politiciansmay have very good reasons not to increase the level of conflict by propos-ing controversial reforms. When, for one reason or another, politiciansprefer to engage in outsourcing previously in-house produced services,they will do it in periods of economic prosperity in order to keep the levelof conflict at a manageable level.
These arguments leave us with two conflicting hypotheses. The fiscalstress thesis is based on the propensity to pursue an economic logic whenput under fiscal stress. The prosperity thesis is based on the political logicthat if controversial reforms should be pursued successfully, economicprosperity is a more feasible economic environment. There is no clearempirical evidence in favor of one of the hypotheses, but there are someindications. From 1987 through 1993, Danish local and regional govern-ments at the aggregate level experienced quite strong fiscal pressures dueto relatively tight economic regulation from the state (Blom-Hansen 1996)
in combination with a long economic recession that squeezed the tax baseof municipalities and counties. However, as seen from Table 2, at theaggregate level, economic stress had no impact on the propensity toengage in increased outsourcing. A Norwegian study shows that in theperiod 1992 through 1995, municipalities with good finances were signifi-cantly more willing to engage in contracting out compared to municipali-ties operating under fiscal stress (Hagen and Sørensen 1998). It appearsthat it is easier to cope with the high political transaction costs associatedwith the introduction of non-hierarchical reforms in a period of prosperity
compared to one of economic recession.The inability to explain the use of contractual regimes of governance
supports the claim that the institutions of formal and informal hierarchyand formal and informal corporatism are in fact core institutions inexplaining the course taken in and the effects of public sector reforms. Ona number of points, the “insiders” of these institutions—politicians, bureaucrats, service producers, and organized interests—have differentpreferences. However, it appears that an equilibrium is reached throughtraditional hierarchical governance, and it seems to be very stable. With
the very strong corporatist institutions, formal and informal, of the Danishpublic sector, the political costs involved in path-breaking reform seemlarge. Not only in relation to market reform, but in general, it can beargued that the Danish, and with that, other Scandinavian, models are notconducive to changes and reforms (Christiansen 1995). Strong corporatistarrangements and a political culture that emphasizes negotiations and
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 291
consensus leave market arrangements outside of what organizations, bureaucrats, and political leaders can agree on within the existing institu-tional arrangements.
CONCLUSION
The Danes should have learned at least one thing during the last decade:comprehensive reform of the public sector is a dubious affair. The talkabout reforms has left the public with the impression that major reformshave been carried through, and of course some things have changed.However, within collectively financed public services, reforms have beenkept within the traditional hierarchical organization of the Danish publicsector. This means that the Danes are left with some of the problems that
existed before reforms took off in the early 1980s. The major reform type,devolution of budgets, has increased the degrees of freedom at the pro-duction level, but has not made it easier to hold producers responsible forthe output (Christiansen 1996). As a consequence, the possibilities of poli-ticians to monitor and control efficiency at the level of service-deliveringorganizations have not increased.
Contractual governance is a means to increase the efficiency of publicservice production, to have defined specifically the type, amount, andquality of services to be produced, and to be able to monitor and sanction
possible contractual violations. Contractual governance is far from theoptimal solution to all problems of public sector governance, but it never-theless appears to have its strength when it is possible to define the servicedemanded and when there is a market for the relevant service.
The lack of success in introducing contractual governance is not, oronly to a limited extent, explained by institutional structures at themacro- level. The political preferences of cabinets and municipal andcounty councils appeared to make no significant difference in the pro-pensity to outsource service tasks. It was argued that the most relevant
institutional explanation should be found at the micro-level. There arehardly reasons to believe that the formal and informal institutions of hierarchy are very different in Denmark from many other Western coun-tries in terms of the preferences and preferred strategies of politiciansand top civil servants. However, the corporatist institutions at themicro-level are very strong in the Danish case. Very strong interests areimbedded in existing institutions. Since these institutions somehowreflect the power position of different actors, the outcome of institu-tional reform is to a large extent explained by the way reform proposals
affect the costs and benefits of the dominating actors. As a consequence,solutions to problems of public sector governance as a consequence arealmost exclusively found within the range of alternatives accepted by allthe dominant actors.
1. Major reforms have been carried through in these areas mainly through theestablishment of state-owned enterprises.
2. Inspired by Christensen (1994) who does not distinguish between formal
and informal hierarchy.3. One should be aware that direct comparisons between the levels of publicconsumption in different countries are biased by problems of comparison(see Andersen and Christiansen, 1991, 41ff.).
4. It should be noted that private schools in Denmark are subsidized for 85% of their operating costs.
5. For documentation of the privatization policy in the beginning of the 1980s,see Kristensen, 1988.
6. The conflict between producers and taxpayers might not always be there.Stein (1990) shows that cost reduction is more a result of better management,changes in the working process, and new technologies than of reduced
wages. If people are interested in working in more well-managed organiza-tions, the individual might prefer a private to a public one. But that is hardlywhat people are thinking when they confront a demand for privatization.
7. Danish hospitals are generally owned and operated by the counties, exceptfor the Rigshospitalet (“National Hospital”) and other hospitals in the Co-penhagen area which are run by a special authority composed of state aswell as municipal representatives.
References
Andersen, J.G. and P.M. Christiansen. 1991. Skatter uden velfærd. De offentlige udgif-ter i international belysning. Copenhagen: Jurist og Økonomforbundet.
Aucoin, P. 1991. The Politics of Restraint Budgeting. In eds. A. Blais and S. Dion.The Budget-Maximizing Bureaucrat. Appraisals and Evidence. Pittsburgh: Univer-sity of Pittsburgh Press.
Bartlett, W. 1993. Quasi-Markets and Educational Reforms. In eds. J. Le Grand andW. Bartlett. Quasi-Markets and Social Policy. London: MacMillan.
Bengtsson, S. and B. Rønnow 1996. Marked som styringsredskab–nogle erfaringer frahollandsk og svensk ældreservice 96:2, Copenhagen: Danish National Institute of Social Research.
Blom-Hansen J. 1996. Kan budgetarbejdet mellem staten og kommunerne forbe-
dres? Nordisk Administrativt Tidsskrift 77:285–305.Caiden, N. 1990. Public Budgeting in the United States: The State of the Discipline.In eds. B. Lynn and A. Wildavsky, Public Administration. The State of the Disci-
pline. Chatham: Chatham House Publishers.Christensen, J.G. 1992. Hierarchical and Contractual Approaches to Budgetary Re-
form. Journal of Theoretical Politics 4:67–91._____. 1994. Managerial Behaviour, Opportunism and Institutional Reform of the Wel-
fare State. Paper for the Workshop on “The New Public Management.” ECPR Joint Sessions of Workshops, Madrid, April 17–22, 1994. Aarhus: Department of Political Science.
_____. 1996. Reshaping the Welfare State: The Dynamics of Decentralization and Recen-
tralization, Paper for delivery at the 1996 annual meeting of the American Politi-cal Science Association, San Francisco, August 29–September 1. Aarhus:Department of Political Science.
Christensen, J.G. and T. Pallesen. 1997. Micro-Institutions, Distribution Concerns, andPublic Sector Reform, Aarhus: Department of Political Science.
Christensen, P. 1994. Vilje til omstilling. Markedsstyring i den offentlige sektor. Aarhus:PLS Consult.
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 293
Christiansen, P.M. 1990. Udgiftspolitikken i 1980’erne: Fra asymmetri til asymme-trisk tilpasning. Politica 22:442–456.
_____. 1995. De nordiske velfærdsstaters tilpasningsbehov og tilpasningsevne. InEffektivisering av välfärdsstaten. TemaNord: 1995:578. Copenhagen: NordicCouncil of Ministers.
_____. 1996. Magt uden ansvar? Offentlig institutionsdrift i nye organisations-former. Politica 28:271–285.Chubb, J.E. and T.M. Moe 1990. Politics, Markets, and American Schools. Washington
DC: The Brookings Institution.Domberger, S. and C. Hall 1996. Contracting for Public Services: A Review of An-
tipodean Experience. Public Administration 74:129–47.Due, J., J.S. Madsen, C.S. Jensen and L.K. Petersen. 1994. The Survival of the Danish
Model. A Historical Sociological Analysis of the Danish System of Collective Bargain-ing. Copenhagen: Jurist og Økonomforbundet.
Dunleavy, P. 1991. Democracy, Bureaucracy and Public Choice. New York: HarvesterWheatsheaf.
Geddes, B. 1995. A Comparative Perspective on the Leninist Legacy in EasternEurope. Comparative Political Studies 28:239–274.
Hagen, T.P. and R. Sørensen. 1998. Fornyelse af kommunal organisering: Aktivstat, reaktive kommuner? (Ch. 4) In eds. K.K. Klausen and K. Ståhlberg. NewPublic Management i Norden. Nye organisations– og ledelsesformer i den decentralevelfærdsstat, Odense: Odense Universitetsforlag.
Hirschman, A.O. 1970. Exit, Voice, and Loyalty. Cambridge and London: HarvardUniversity Press.
Hood, C. 1991a. Stabilization and Cutbacks. A Cathastrophe for GovernmentGrowth Theory? Journal of Theoretical Politics 3:37–63.
_____. 1991b. A Public Management for All Seasons? Public Administration.
69:3–19.Kettl, D.F. 1993. Sharing Power. Public Governance and Private Markets. Washington
DC: The Brookings Institution.Knight, J. 1992. Institutions and Social Conflict. Cambridge: Cambridge University
Press.Kristensen, O.P. 1980. The Logic of Political Bureaucratic Decision-Making as a
Cause of Government Growth. European Journal of Political Research 8:249–264._____. 1987a. Alliancer og konflikter i forbindelse med privatisering. Paper til fremlæg-
gelse på FAFO’s seminar om privatisering, Oslo, Aarhus: Institute of PoliticalScience.
_____. 1987b. Væksten i den offentlige sektor. Copenhagen: Jurist— og Økonomfor- bundets Forlag.
_____. 1988. The Politics of Privatization: The Case of Denmark . Paper for the ECPR Joint Sessions of Workshops, Rimini, Aarhus: Institute of Political Science.
Le Grand, J. 1987. The Theory of Government Failure. British Journal of Political Sci-ence 21:423–442.
March, J.G. and J.P. Olsen 1984. Organizing Political Life: What Administrative Re-organization Tells Us about Government. American Political Science Review77:281–296.
Meier, K.J. 1980. Executive Reorganization of Government: Impact on Employ-ment and Expenditures. American Journal of Political Science 24:396–412.
Metcalfe, L. 1993. Conviction Politics and Dynamic Conservatism: Mrs. Thatcher’sManagerial Revolution. International Political Science Review 14:351–372.Miller, G.J. and T. Moe. 1983. Bureaucrats, Legislators and the Size of Government.
American Political Science Review 77:297–322.Milne, R.G. 1993. Contractor’s Experience of Compulsive Competitive Tendering:
A Case Study of Contract Cleaners in the NHS. Public Administration 71:301–21.
Ministry of Finance. 1983. Redegørelse til Folketinget om regeringens program for mod-ernisering af den offentlige sektor. Copenhagen.
_____. 1991a. Udgiftsanalyser 1991. Copenhagen._____. 1991b. Udlicitering af offentlige drifts- og anlægsopgaver. Betænkning nr. 1227,
Copenhagen.
_____. 1993. Nyt syn på den offentlige sektor. Copenhagen.Ministry of Finance and Ministry of the Interior 1995. Erfaringer med udbud og udli-citering, Copenhagen.
Moe, T. 1984. The New Economics of Organization. American Journal of Political Sci-ence. 28:739–777.
_____. 1989. The Politics of Bureaucratic Change. In eds. J.E. Chubb and P.E. Peter-son. Can the Government Govern? Washington DC: The Brookings Institution.
Mouritzen, P.E. 1991. Den politiske cyklus. Aarhus: Politica.North, D. 1990. Institutions, Institutional Change, and Economic Performance. Cam-
bridge: Cambridge University Press.Nørgaard, A.S. 1997. The Politics of Institutional Control. Corporatism in Danish Occu-
pational Safety and Health Regulation & Unemployment Insurance, 1870–1995. Aar-hus: Politica.
OECD. 1993. Economic Outlook . December. Paris: OECD._____. 1996. National Accounts 1982–1994. Paris: OECD.Offentlig & Privat 1995. 2(2).Olsen, J.P. 1978. Folkestyre, byråkrati og korporativisme. In ed. J.P. Olsen. Politisk
organisering. Oslo: Universitetsforlaget.Ostrom, E. 1986. An Agenda for the Study of Institutions. Public Choice. 48:3–25._____. 1990. Governing the Commons. The Evolution of Institutions for Collective Ac-
tion. New York: Cambridge University Press._____. 1991. Rational Choice Theory and Institutional Analysis: Toward Comple-
mentarity. American Political Science Review 85:237–243.Page, E.C. 1991. Localism and Centralism in Europe. The Political and Legal Bases of Lo-
cal Self-Government. Oxford: Oxford University Press.Pierre, J. 1993. Legitimacy, Institutional Change, and the Politics of Public Admin-
istration in Sweden. International Political Science Review. 14:387–402.PLS-Consult 1992. Kommunaldirektørernes vurdering af markedsstyring i kommunerne.
Hovedresultater af spørgeskemaundersøgelse. Aarhus: PLS-Consult.PLS-Consult 1997. Erfaringer med udlicitering i kommuner og amter. Hovedrapport. Co-
penhagen: PLS-Consult.Rigsrevisionen 1993. Beretning til statsrevisorerne om virkningen af regeringens mod-
erniseringsprogram på udvalgte serviceinstitutioner. Copenhagen.Rouban, L. 1993. Public Administration and Political Change–Introduction. Inter-
national Political Science Review 14:315–318._____. 1993a. France in Search of a New Administrative Order. International Politi-
cal Science Review 14:403–418.Savas, E.S. 1982. Privatizing the Public Sector. Chatham: Chatham House Publishers.Schwartz, H. 1994. Small States in Big Trouble: State Reorganization in Australia,
Denmark, New Zealand, and Sweden in the 1980s. World Politics 46:527–555.Shepsle, K.A. 1989. Studying Institutions. Some Lessons from the Rational Choice
Statistiske efterretninger. [various issues]. Statistics Denmark. Copenhagen.Stein, R.M. 1990. The Budgetary Effects of Municipal Service Contracting: APrincipal-Agent Explanation. Americal Journal of Political Science 34:471–502.
Walsh, K. 1995. Public Services and Market Mechanisms. Competition, Contracting andthe New Public Management. Houndmills: Macmillan.
Williamson, O.E. 1975. Markets and Hierarchies. New York: Free Press._____. 1985. The Economic Institutions of Capitalism. New York: Free Press.
MARKET SOLUTIONS TO PROBLEMS OF PUBLIC SECTOR GOVERNANCE 295
