MattAndrews

The past leads to the future in PFM reform: More on Sweden

Last week I posted a blog on Sweden's public financial management reforms. I asked what lessons we could learn from these reforms. Many people are looking for these lessons, with various attempts to mimic the fiscal rules Sweden employs, and the multi-year budgeting approach they use, and the performance based mechanisms they work with.

I argued that the lessons from Sweden are less about the mechanisms and systems and rules they have in place today, and more about the processes they went through to find and fit these mechanisms, systems and rules. These processes spanned decades and involved the basic dimensions that Lant Pritchett, Michael Woolcock and I see as important in any change process. We present these dimensions together in our paper on Problem Driven Iterative Adaptation where we call for development projects that are (i) problem driven, (ii) iterative--where future steps build on lessons learned from past steps, and (iii) involving many agents working together across space and time.

I see these dimensions in the Swedish story. They are evident 80 years ago in respect of the country's fiscal rules, where academic luminaries were engaged in offering ideas--and even nascent reforms--where what we would now call fiscal rules were discussed. The figure below shows how counter cyclical budgets were first attempted in the early 1930s, chewed on by intellectuals like Myrdal, and then introduced via reform in 1937. These rules were introduced because of major problems emerging because of the financial crises of the 1920s which raised serious questions about the role of state finances in the economy. They emerged gradually through the decade, with some experimentation, some learning, and then reform. They were the product of multiple agents in academia, various political parties, and the bureaucracy. PDIA in action even then. Most importantly, the lessons from this period carried forth into the 1990s and 2000s when coalitions of agents again picked up on their relevance given a new set of problems...

The 1930s experiments lost steam at the time because the country went through a difficult period during world war two. The problems of the 1930s had changed and the public financial management and budgetary issues of the day were different. After the war, one finds the government growing in size, and many bureaucrats and politicians started asking some even newer questions, reflecting new problems. The major problem seemed to be how they could allocate money effectively given the many new roles government was being asked to play in the economy. And so one finds experiments with program based reforms that also had a multi-year budgeting element to them. The country used pilots to introduce the reform and an alliance developed between the budget officials in the ministry of finance and officials in the national audit office. It is really interesting that these groups collaborated to do regular evaluations of the reform, with many lessons emerging from these evaluations in the early and late 1970s. By the late 1970s the reform was largely abandoned as a failure, partly because the problems warranting attention had again changed: the state was facing constraints and asking how to control spending, more than allocate it. So, one finds PPBS abolished in the same year that the government begins using a 'Cost slicer' to help control spending.

 The reform may not have stuck, but once again I find it interesting to note the dimensions of PDIA in action. Problems driving reform. A reform introduced in steps with lots of learning and adjustment over a period of time. Multiple agencies involved. There was no five year project development phased, with loads of project preparation documents, a pre-designed intervention, limited wiggle room, and one central driver pushing reform from the top.

Most importantly, one sees this reform experiment leading to next steps almost immediately, and culminating in the more advanced multi-year and performance budgeting interventions we see today. The next steps were in the 1980s, accompanied by political transition and an abundance of new thinking about government. The reforms here were again all inspired by problems and all involved some experimentation, with quick feedback and slow formalization of interventions. We see experimentation with municipal reform, for instance, and multi-year budgeting, and civil service structures, agencification, etc. etc. The Swedes did not just jump into any of these reforms like many developing countries. They took their time, tried things out, gathered feedback, engaged multiple agents to learn, and then made interventions more formal.

The figure above shows some of the activity in the 1980s and early 1990s. You will see that it ends in 1992/3 when the country experienced a crisis that many present as the start of reform. Hopefully it is apparent that the reforms began way before this. No doubt much more happened after 1993 (and I will break some of this down in the next blog on this topic) but you need to see that the country has been involved in iterative muddling through with these reforms for a long time. New ideas build on past lessons and experiences, new groups or agents come out of the alliances developed in the past, new political support for reforms comes out of past efforts to show the viability of potential interventions, new capacities are the product of years of efforts to try new things in different ways.

This process of problem driven iterative adaptation has proved central to Sweden's reform experience and is, in my experience, the best practice we should learn from this experience.

Budget Reforms and Austerity: Lessons from Sweden

A few weeks ago I noted that we will draw on Sweden's budget reform experience in the January executive education course at Harvard. I set up a link to some interviews about the reform that centered on the role of key politicians introducing new technical fixes between 1994 and 1997.

The example is pretty impressive. I'm not the only one who things so. A number of articles suggest it is a good model for OECD countries to reflect on as they struggle with questions of austerity and what budget processes should look like moving ahead. Here are some other references: http://www.telegraph.co.uk/finance/budget/6199271/Canada-and-Sweden-inspire-Tory-cutters.html

http://www.voxeu.org/article/what-can-europe-learn-sweden-four-lessons-fiscal-discipline

http://www.economonitor.com/dolanecon/2011/07/31/how-smart-fiscal-rules-keep-swedens-budget-in-balance/

The story is simply shown in the following diagram I lifted from Ed Dolan's blog site.

Essentially, the country went from a dramatic fiscal deficit situation in the early 1990s to a sustained period of surpluses thereafter. So, what made the difference? What are the lessons for the USA, Greece, Ireland and others.

Among the answers to this question, you will find people referring to the fiscal rules in place, the medium-term orientation of budgets, and the role of the Fiscal Council. These are 'what' one sees as the lessons, and they are pretty inspiring. They also lead to simple proposals: Adopt a flexible, counter cyclical rule, or a multi-year budget.

But here's the problem. The USA had a fiscal rule (not counter cyclical perhaps,  but a rule nonetheless) that fell into disuse  (rapidly). And Ireland pursued multi-year budgeting reforms (twice) in the past without success (early 1990s and late 1990s). Both solutions--and other interventions--have been raised consistently for countries like Greece as well. Politics and other factors seem to be in the way of reforms emerging in these contexts that work like they did in Sweden.

This begs the question in Sweden: How did the Swede's come up with solutions that could actually find political acceptance and work practically. Here are some observations.

First, in respect of fiscal rules: When one reads the popular material about Sweden's fiscal rules, one learns that they were introduced in 1997 and are special because of the way they call for surpluses across the business cycle, tied with expenditure limits. The design is indeed special, but what is more interesting to me is where it came from. And here one needs to go backwards into Swedish budgetary history, to the 1930s when Dag Hammarsjkjold and Gunnar Myrdal first introduced countercycical fiscal policy rules into the country. Swede's know who these people are. And their influence carried through the 1940s and 1950s when debates about counter cyclical measures were rife in the government. They were not effective at the time, however, but were always part of the budget lore of the country. Until, of course, they were taken off the shelf and used.

So, what kind of lore is present in the USA, Greece, and other places? How much dialog has been happening in the technoratic and political space and how have alternatives to the incumbent systems been incubated. Are there any alternatives that have legitimacy enough to actually emerge as politically viable?

Second, in respect of multi-year budgeting: When one reads about Sweden's current system it seems like multi-year budgets were introduced in 1997. Not true. The first attempt to introduce a multi-year approach--with programs as well--was in 1968. The program budgeting initiative at the time saw alliances develop between the national audit office and budget department and led to a significant number of lessons about what does not work with these reforms! As a reform it was not very memorable, but it was a key point of reference when the government again developed a multi-year budget reform in 1988 (also with performance management dimensions). This again was not a huge success, but people like Per Molander used lessons from this to inform the 1990s reforms that culminated in the current structures.

So, what kind of experience can countries like the USA, Greece, and others build on to improve their systems? The past few decades have seen a myriad of reforms emerge in places like the USA and Ireland--but it is not clear that reforms build on each other or that reformers are learning from experiences. The technocrats and politicians seem to change eveery few years and emerge with ideas taht pay little attention to past experience and seem to lead to the same kinds of failure, again and again, with little learning.

Third, in respect of Sweden's Fiscal Council: I'm not sure what we learn from the Fiscal Council, at least about getting out of fiscal austerity. It was introduced in 2007 and certainly helped the government manage its response to the 2008 global crisis. That is a good thing, and I guess it would be great if the USA had an equivalent entity. But Sweden's big crisis was in 1992-3 and there was no Fiscal Council to get it out of that jam. Come to think of it, the fiscal rules and multi-year budget did not get them out of that jam either. These reforms came a few years afterwards (when politicians, technocrats and others could chew a  bit on their experiences and work out sensible solutions). With this timeline in mind, I asked what helped the country from its jam and what created the room for interventions like the fiscal rules? Here is what I see. Dramatic health care reform in 1992. Deconcentration of fiscal responsibilities throughout government at the same time. Pretty aggressive civil service reforms and cuts. And the centralization of reforms and of budget decisions in the Ministry of Finance, staffed by highly competent and influential civil servants and headed by an ambitious, powerful and focused Minister. Probably the most important thing these civil servants and politicians did was construct a message about why austerity was needed that ensured acceptance of the interventions. When I read about the cuts and changes it is important that part of the message was that everyone had to suffer for everyone to ultimately survive and succeed. Egalitarian sacrifice I guess.

So, the lesson I see is simply that there is something to a successful austerity program that looks less like a technocratic reform and more like a political movement. Strong action, coupled with a message of urgency spread by a group of agents, that ultimately created space for real change. The government did not just signal change with some technical fix. They addressed the cost drivers, faced up to the problems they had in real time, and then looked for real fixes.

This seems to be a common factor in real fiscal reform. Let the problem become shared and real, felt by many, and then use this problem as the driver of a search for real solutions.

 

Problem tree analysis in Africa's health sector in real time

Doing problem tree analyses in just 20 minutes led to detailed perspectives on the complex challenges african health sectors faced. Maternal mortality rates of nearly 500 in some countries.
Here are some of the presenters in photos and some comments. Note the complexity of some of these charts. Amazingly many of the countries have been sold simple solutions. When the teams go one or two steps into their exercises they find quickly that politics is everywhere, real capacity constraints are everywhere, and simple solutions just don't fit that easily.
"The problem is that hospital staff is insufficient to the task"
"You'll wait a long time for a doctor who isn't there"
"If they are there they don't do what they should do...so pregnant women don't get blood pressure taken etc."
"We must look for opportunities to do more with what we have"
"Four pages of causes and their causes helps us see the problem better."
"Once you identify the problem you start to think about where to intervene and what to do there. Where can we act with the resources we have, now."

Problem driven health reform in Africa

I'm in South Africa with colleagues from the Harvard School of Public Health. Trying to tackle thorny issues with teams of health sector officials from six countries. Everyone is patiently working through problems that are holding their sector back. Marc Roberts, in photos, is encouraging people to pick a problem, draw a tree, and not think about solutions. Elements of PDIA in action.

Governance and the demand side: Birth registration in Cambodia

I have an example to build from the blog post about demand, governance and attribution. This shows how demand side issues need to be addressed in providing better governance, and how they can be addressed.

The example comes from a recent blog entry about UNICEF's work in Cambodia. I went looking for it because Clay Wescott pointed out that Cambodia had improved its birth registration rates in recent years and because Natalia Adler's UNICEF connection inspired me (thanks to Clay and Natalia).

So, if you go to one of UNICEF's 'field stories' in August 2011, you will read about improvements in birth registration in a village in Cambodia. http://www.unicef.org.au/Discover/Field-Stories/August-2011/Cambodia--Birth-registration-campaign-success.aspx

It is a great story, and is all about the way those in authority are exercising their authority to ensure more citizens are engaged in the life and activity of Cambodia (aka good governance). Consider the evidence that governance has improved--in the better performance on a key output for one family (and a baby called Avin) and a local community (Doun Koeng)...which has increased their potential engagement in many facets of life:

"Avin was one of 147 babies born in Doun Koeng commune in 2010, all of whom received their birth certificates within the first month after birth. Having 100 per cent of newborns officially registered within the 30-day legal timeframe is a dramatic accomplishment for the commune. Just two years before, in 2008, only 20 per cent of newborns received their birth certificates."

One thing I notice in this comment is that there was a legal timeframe to register births. In my book this would be one dimension of the correct 'form' of a birth registration system. Many countries have these correct 'forms' now--laws, systems,  procedures. The problem is that they don't function, which is why the author says that actually performing as the law requires is a 'dramatic achievement'.

Good governance is about closing the form-function gaps and fostering these dramatic acheivements. So, how is this done. Let's get some ideas from the field story:

"Several factors have led to this commune’s success, including an effective outreach and awareness-raising campaign, mobile registration in which commune representatives visited families of newborns to register them in their homes, and improved coordination between the commune, health centres and citizens."

Sounds like there are supply and demand side interventions here-and a whole lot of finding and fitting solutions to the context...and bringing lots of elements of a solution together. The key was not having one central registry in a building and a law that required births be registered (the general supply side intervention). Instead, one key was providing mobile registration mechanisms (smart, fitted supply side actions). Another key was ensuring coordination between multiple entities all authorized to provide part of the solution (the commune, health centres and citizens). Another key was generating demand from citizens through outreach and awareness-building.

The awareness building and outreach campaigns were obviously key demand side interventions. They involved government. They were fitted to the context. They were focused on producing results. Not new forms but better functionality. Read about the way they worked, and how they shifted cognitive frameworks citizens held (emphasis is mine):

 "Yeang Khan, 33, never fully understood the importance of a birth certificate until a year ago, when she was pregnant with her third child. That’s when a stream of information about the significance of civil registration filtered through Khan’s village...

The information flow started with her village chief, who one day visited Khan and her neighbours to explain that their children would need birth certificates in order to attend school, to receive immunizations and, later in life, to get married, get an identification card or get a passport.

The information flow didn’t end there. Khan turned on the TV at night to hear echoes of the village chief and Commune Committee for Women  representative as she watched public announcements espousing the benefits of birth certificates as a critical cornerstone to a child’s secure future and right to identity—a right secured under the 1989 Convention on the Rights of the Child.

“We were told almost every day, ‘This is important,’” said Khan. “We couldn’t ignore the message.”

In September 2010, Khan gave birth to a healthy baby boy at the local health centre. She named him “Avin.” After delivery, Khan was sent home with a yellow immunization card that recorded the baby’s vital statistics, and a message from the health centre director that reiterated the voices already resonating in her mind: Get your baby registered."

There is a lot going on in this short segment. Notice the reference to 1989's Convention on the Rights of the Child. This is a global supply side initiative that many people point to as a crucial intervention on the road to good governance in this area. Governments have to be signatories to this if they want to be considered legitimate. Note, however, that it is really jut a 'form' or platitude.

The real work of ensuring good governance-using authority to make a difference for citizens-has to do with having a bunch of locally relevant supply and demand interventions that intersect to produce the outcomes people need.

• Local supply side mechanisms in this short vignette include the local health center where Arvin was born. And the health center director who was present and trained to push Arvin's mom to register her new child. And the yellow  immunization form and message that promoted registration. Government agencies were probably interacting with non profit and private and international agents to provide these things. Governance in action. Hard work. Locally relevant. Effective.
• Local demand side mechanisms are also in evidence. Consider the local chief actually visiting local people and talking about registration. And the messages on television from multiple parties. And the way these parties constructed a story about why citizens needed to register, that showed how registration solved a problem people were facing ("right now your babies don't have rights or access...but they could"). Notice also how the incentive to register was made real and proximate (kids could not get into school without being registered). Notice how consistent the message was and how 'important' it was that they were told every day. Again, it is vital to see that these demand side interventions involved different government agencies, private and non profits, whose efforts were coordinated to ensure they facilitated the achievement of better outcomes. Governance in action.

On the strength of this story, I would be happy to say that governance is improving in this area of Cambodia. I would also be happy to say this improved governance is only partly about what government produced. It is about the way government is using its authority to facilitate, accommodate, inspire and sometimes produce real solutions to real problems its people face.