State agencies: failure of the « new public management »?

The point here is not to criticize the concept of New Public Management – although it could be argued that there is an intrinsic difference between public and private management, which differ in their aims – but to reflect on the results of one of its applications: the establishment of public agencies.

Indeed, one of the major recommendations of the New Public Management movement was for the State to create agencies that would be placed under its authority, but which would be autonomous in their operations, with a legal status that would differentiate them from traditional public services, and with operating and management methods inspired by the private sector (contractualization of services, competition with other players, management of human resources based on the principle of subsidiarity, etc.).

based not on status and seniority, but on merit and results, and a view of public service users as customers). Thanks to the broad appeal of this intellectual trend, state agencies have long been « fashionable » in public management, all the more so as many saw in them an opportunity for the state to make savings and limit the budgetary impact of its public policies.

But in the current difficult context for public finances, the issue has come back to the forefront and, while the State is showing itself to be increasingly concerned with controlling its spending, the record is not good. In its September 2012 report, the French Inspectorate General of Finance (IGF) not only pointed to the enormous costs of these agencies – €50 billion a year… – but also questioned their effectiveness.

Legal vagueness makes it difficult to effectively review the agencies’ actions

Until 2012, it was unclear exactly what a public agency was, legally speaking. This legal vagueness is at the root of all the difficulties encountered by policy-makers in monitoring their actions, and partly explains the sometimes irrational proliferation of these agencies.

It was in its 2012 « Annual Survey » that the Conseil d’Etat decided to carry out « a conceptual reorganization », noting that agencies « have never been the subject of an overall reflection and do not appear as such in general administrative reforms. They are an unthought-of aspect of State reform ».

And yet, public agencies have proliferated in recent years: Agence nationale de sécurité sanitaire, Agence nationale de sécurité du médicament et des produits de santé, Institut de Veille sanitaire, Institut national de prévention et d’éducation pour la santé (INPES), Agence des participations de l’Etat, Pôle Emploi, Agence de l’environnement et de la maitrise de l’énergie, Autorité des marchés financiers, Météo France, Agence du développement de la culture kanak… a myriad. The Conseil d’Etat counts 103, the Inspection générale des Finances 1244.

This discrepancy can be explained by the absence of a legal definition of a public agency used by all. The IGF has adopted a broad conception, which considers as agencies all entities « both controlled by the State and carrying out non-market public service missions on its behalf », establishing as « agencies » :

– commercial public establishments (EPIC)

– Public administrative establishments (EPA)

– independent administrative authorities, which have proliferated in recent decades

– Services of national competence (SCN)

– Public interest groupings (GIC)

For its part, the Conseil d’Etat has chosen a definition that is more rigorous in legal terms, but also more restrictive in terms of public management – and therefore less operational when it comes to assessing the real financial impact of agencies.  » The agency is not independent, it is autonomous: the executive power has no role to play in its day-to-day management, but it does define the policy guidelines that the agency implements. As for operators, as defined by budgetary law, while many are agencies, the majority are not. Indeed, entities such as museums, nature parks, universities or research organizations, which can be created in any number, do not play a structuring role in the implementation of public policy. The agency is therefore defined by these two cumulative criteria: autonomy and the exercise of a structuring responsibility in the implementation of a national public policy « .

The legal vagueness surrounding these « satellites of the State » has made it more difficult for the government and Parliament to control them. Legal redefinitions of public agencies were necessary, as they have become a fundamental issue in public management, a fortiori in the current situation of French public finances.

Irrational growth in the number of agencies, leading to excessive financial costs

If we take the Conseil d’Etat’s definition, there are 103 public agencies in France today, representing a total budget of 330 billion euros, but reduced to 72.8 billion euros if we exclude the national social security funds. With 145,000 jobs, their workforce represents 8% of the total civil service.

For the IGF, State operators (a particular form of agency according to its definition) alone account for 20% of the State’s general budget and workforce. Moreover, the growth in operators’ payroll and headcount is much faster than that of the State: +6.1% between 2007 and 2012, compared with -6% over the same period. Similarly, the financial resources allocated to operators have increased by 15% over these five years, i.e. four times faster than that of the French government.

For the IGF, the creation of agencies mechanically translates into an increase in the structural costs of public policies, linked to the additional costs of State supervision (public-sector jobs are needed to ensure this supervision), additional costs of demutualization, and costs linked to staff increases.

Over the last few decades, however, agencies have extended their reach into all areas of public policy, starting with employment and training in the 1960s and 1970s, then health and the environment in the 1990s and 2000s, and in recent years have even moved into sovereign domains such as security.

This proliferation can be explained by the agencies’ sincere desire to improve the quality of their public services. Thanks to its specialization, an agency is often more efficient and professionalized, particularly when it comes to industrialized public services, and enables the development of genuine public expertise. Agencies make it easier to recruit people with skills not usually found in the public sector. They are a point of contact with local authorities and civil society.

But their excessive cost can be explained by shortcomings in state and political governance. Agencies are often created on an ad hoc, one-off basis, without any overall strategy, and often without any coherence or consideration of their impact on the rest of the public sphere. Why create an agency? Wouldn’t traditional public services be just as appropriate for carrying out these public policies and public service missions? Aren’t we running the risk of dismembering public policy too much by resorting en masse to agencies?

These fundamental questions about whether and how to use an agency have not been addressed as part of an overall strategy decided by the political authorities and supported by the State. In some areas of public policy, for example, there are many agencies operating in the same niche, and the division of responsibilities is not sufficiently clearly defined in regulations or legislation to avoid overlap and duplication. Still on the legal front, public policy design and implementation functions are not always clearly separated, which often leads to management difficulties, and sometimes to institutional conflicts.

On the other hand, the creation of agencies has a number of perverse budgetary effects. Firstly, agencies very often have a tendency to endure over time, even when they were intended to be only temporary. Secondly, and more seriously, they can be the source of massive de-budgeting practices. In other words, this involves transferring certain State expenditure from the budget to other public accounts; but in some cases, this transfer may escape parliamentary control and be used as a means of escaping certain budgetary constraints by shifting expenditure to other legal entities. This sometimes contradicts the principles of universality and unity of budgetary law. Agencies have thus become, in the words of the Conseil d’Etat,  » an escape route from the control of public finances « .

What’s next? How to put an end to waste

The IGF’s conclusion is clear: «  in the absence of a strategy, the State has gone too far in its dismemberment. It must now rationalize the landscape of its agencies « .

From a legal standpoint, the Conseil d’Etat proposes a framework for the use of agencies, using four criteria to justify their creation: the usefulness of specialization(criterion of efficiency); the need for expertise distinct from that of government departments(criterion of expertise); the preponderance of partnerships with local authorities or civil society players in implementing public policy(criterion of partnership); the need to avoid the intervention of political power in internal decision-making processes(criterion of neutrality). An impact study is required when setting up an agency.

In financial terms, agencies need to be reintegrated into a common budgetary framework with the State, so that they are fully in line with the trajectories of public accounts and public policy objectives. As a first step, the 2012 Finance Act introduced a ceiling on the tax resources allocated to certain government agencies and operators.

On a political level, it is more than ever necessary to reform the governance of the agencies and strengthen the State’s strategic oversight, so that the agencies are part of an overall strategy and are at last fully involved in the financial efforts of the State and the nation.

References
– Conseil d’Etat, Annual study 2012: « Agencies, a new form of public management? » http://www.ladocumentationfrancaise.fr/var/storage/rapports-publics/124000501/0000.pdf

– Report n°2011-M-044-01 by the Inspection générale des Finances (March 2012), « L’Etat et
ses agences »

– http://www.igf.finances.gouv.fr/webdav/site/igf/shared/Nos_Rapports/documents/2012/Agences%20de%20l%27Etat/2011-M-044-01%20Agences%20de%20l%27Etat%202.pdf