“The history of budget and the development of modern democracy are closely related” (Allen Schick)

Democracy defenders strongly emphasized the necessary means for informed and enlightened citizens, such as education, discussion and public decision (Robert Dahl)

 

Introduction

Recent literature about public budgeting has been dealing with the potential benefits of performance-oriented budgeting. The studies aim to prove the positive effects of the performance-oriented budget (POB), not only on governments’ economic and financial performance, but also on public management. (Diamond 2005, Schick 2003, Robinson and Brumby 2005)

On the one hand, it has been argued that striving for performance tends to reduce the waste of resources, contributing to the favorable performance of public finances. In that case, POB is seen as an improving factor in public goods and services supply without the need to create additional financing instruments, such as the increase in tax paying levels, issue of public securities or external loan taking.

In addition to the positive repercussion on government accounts, POB also has a microeconomic dimension in that it increases government’s efficiency levels. Society is benefited because public policies become more effective, offering quantity and quality closer to the citizens’ preferences and needs. In the same manner, in virtue of incentives and punishments oriented to operative efficacy, public organizations have become more efficient and less bureaucratic.

The arguments presented by the defenders of POB appear to be convincing, especially in a contemporary world, characterized by global citizenship aspirations, permanent efforts to reduce poverty and inequality, commitment to macroeconomic stability, effective public policies, as well as efficient, ethical and transparent public management. However, little has been studied about the POB’s impact on democratic models, that is, to what extent the search for performance fosters or not, the exercise of essential rights, such as the access to public goods and services, individual freedom and guarantees, social participation and society’s control over public managers’ performance.

The purpose of the present paper is to study POB’s possible contributions to democracy, having Latin America as the main focus. This option is justified by three central reasons. First, there is strong evidence that democracy of this continent has not yet been fully consolidated. Second, there is available data to demonstrate the hypothesis, especially the investigations at the Latinobarómetro Institute. Third, the political dimension of public budget cannot be discussed by restricting its action to a mere quantification instrument of public policies.

Performance-Oriented Budget

A good synthesis of principles, directives and objectives of performance-oriented budgeting can be found in Makon (2008). For him, POB, as it is something more than a new technique, represents a “substantive and integral” change of model that demands innovation in three dimensions: at an organizational level, it requires the implementation of certain administrative requirements; at an institutional level, it presupposes the revision of governmental organization roles, such as Parliament and control institutions; at a behavioral level, it requires a modification in the social actors’ behavior, including the civil society’s.

POB goes beyond traditional budget, which essentially consists of assigning financial information to the government’s units, by means of spending target raters. With the need of rebuilding the economies devastated by world wars, and based on recommendations elaborated by the United Nations, national budgets turn to follow the scheduling principle. In this manner, in addition to rating public spending financially, budget incorporates the function of promoting economic development through government policy planning.

Program budgeting represents a structural break as a consequence of three new functions that were associated to budgeting: i) based on the supply-product ratio, budget is seen as the expression of productive processes; ii) the use of resource allocation criteria earns relevance, to the extent that resources are scarce and needs are infinite; iii) the relation between targets, goals and policies suggest the use of mechanisms to assess performance achieved with relation to the intended one. (Core 2001)

Makon (2008:2) understands that, in Latin America, program budgeting has not achieved its purposes, in virtue of deficiencies in planning processes, of excessive emphasis on control, of low systemic capacity of public organizations and of the permanence of allocation obsolete criteria.

Budgeting techniques will receive a new innovation stimulus by the public sector reforms started after the 1980’s and 1990’s, as a response to the crisis (economic, fiscal, financial and institutional) faced by Latin American countries. In the light of the dimension of the challenge presented by the crisis, it was considered that said reforms should comprise not only financial regulation, but also the institutional structures responsible for public finances.

Under the name of New Public Management, a set of changes was established. The central idea of this movement was to transfer to the public sector, the management techniques (allegedly more modern and efficient) used by private organizations, removing bureaucratic, inertial, expensive and little effective models. The reform wave also fostered competitiveness between organizations, emphasis on management autonomy, result contractualization, and power decentralization towards local spheres.

In this manner, it becomes clear that without completely fulfilling the necessary requirements for implementing the program budget, the State has received a new orientation: to direct its efforts efficiently to get results by adopting a managerial approach. It is in this historical context, that POB arises.

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Evidence show that the practice of program budgeting still needs self-consolidation and that management reforms need to be strengthened. This government double mission is not a simple task (Schick 2008, Core 2005). After all, what steps are necessary to overcome the bureaucratic obstacles and formalist culture? How can public organizations be turned into efficient good and service suppliers?

Makon himself (2008) suggests measures that may contribute to structural change implementation. At the technical-administrative level, the following are recommended: strengthening of the planning process, budgetary pluriannuality, performance indicators, improvement of financial management, and the creation of incentive systems. At the institutional level, he suggests reviewing Parliament and control organizations’ roles. In turn, with relation to the performance of social actors, PBO implies a change of behavior within the civil society, leaders and bureaucracy.

This last item requires further exploration. Civil society is a critical element since its perception on the ruler’s performance is what legitimates the political system. The distance between ruled and rulers, the lack of articulation of social demands and the absence of popular monitoring systematic practices have adverse impact on public policies effectiveness. As it is attempted to defend hereafter, systematic interaction between public power and its users is a powerful economic development factor.

The ruling class also plays a relevant role in the passage from a bureaucratic model to a performance-oriented model. In countries where the economically ruling class has a predatory relation with society, corrupt and inefficient public administration facilitates favors and advantages. In addition to this, the ruling class appropriates the most prestigious public positions (and better paid) through privileged access. Administrations having an efficient and modern management presuppose qualified, motivated, competent staff organizations with payment and responsibilities compatible with the complexity of their attributions.

With relation to bureaucracy, bureaucratic regimes tend to promote conservatism, inertia, lack of interest in labor and a low degree of innovation. Any change in public management will only be possible through the transformation of public servants’ behavior. The construction of an incentive system (result contractualization, for instance) seems to be promissory, in spite of lacking deeper studies.

 

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This brief description of the changes implied in POB shows the dimension of the challenge. There have been recent attempts to measure the current POB status in Latin America through the Index of Public Management (Graph I). Overcoming the bureaucratic paradigm is not a trivial task. It cannot be implemented only by the decision of the ruling cores (top-down strategy), neither is it enough to adequate to the pertinent legislation. The transformations involved are deep, possibly demanding a gradual maturing of institutions and the permanent commitment of the involved social actors.

 

Democratic Models in Latin America

 

Public budget is usually analyzed from its technical aspect, being perceived as an instrument to quantify the resources allocated for certain policies. In recent times, in virtue of the concern about public accounts balance, the function of budget as a responsible fiscal management instrument has been intensified. However, we cannot forget that the budget historical function is essentially political, being related to the legitimacy of the political system. (Giacomoni 2007).

“The history of budget and the development of modern democracy are closely interwoven” (Schick 2005). There are several reasons that justify the confluence between budgeting and democracy. First of all, to submit the budget proposal to the parliament’s consideration implies restricting the ruler’s power and granting a decisive role to the representatives voted by the people. Second, budget, upon allocating resources for the implementation of public policies, attempts to provide public goods, which are important to promote citizenship and social inclusion. Third, the advertising of budgets is an instrument for civil society to know the government’s plan, enabling it to supervise its execution, to monitor its performance and to demand performance. Fourth, success or failure to implement the actions provided in the budget has an important impact on the evaluation, not only of the ruler’s performance, but also of the political regime. According to the discussion hereinafter, there are investigations that put into evidence the fact that the Latin American electors would accept resigning democracy if authoritarian regimes offered them better economic conditions. (Fortis 2008)

Democratic procedures also influence the budgetary process, especially in the budgeting, execution, monitoring, evaluation and accountability processes. Periodical free elections enable the citizen to reward the efficient political party or public administrator. If democracy were defined as a political system that maximizes the possibility of the citizens to have influence on public area decisions, the budget would appear as a decisive place to articulate the civil society’s demands. Although generally restricted to local administrations, participative budget illustrates how the construction of debate and negotiation fields may incentivize civic commitment. Optimistic thinkers even foresee the appearance of “plebiscitary budget”, in which the population “votes” in favor of certain policies, selecting the allocation choices closer to their preferences.

The relation between budget and democracy depends, evidently, on the manner in which democracy, whose dimensions and meanings are multiple, is defined (Dahl 1989). It is consistent to assume that democracy encompasses a minimum set of institutions, guarantees, rights and opportunities: rulers elected in free and fair elections, ample vote, freedom of expression, right to information, right of association, right to be judged by judges (Dahl 2000). But it is also valid to think that political culture is a relevant factor for democracy operation, that is, the existence of a set of beliefs, standards and values favorable to democracy may motivate a political behavior favorable for the preservation of the political system even in crisis situations. (Almond and Verba 1963, Moisés 2005).

One of the most critical elements of political culture is trust, either interpersonal or institutional. As Schick (2008:18) points out: “Trust in government leaders and in institutions is a prerequisite for the successful implementation of performance-oriented budgeting.” If citizens do not trust their administrators, there is no reason to delegate in them more autonomy and responsibility, it being more sensible to intensify rules and controls.

In consequence, to think about POB budget, it is necessary to examine the existing trust levels in a determined society and therefore, to evaluate its degree of democratic maturation. In the case of Latin America, the contemporary studies show that the democratic consolidation process has not yet been reached (Power and Jamison, 2005). In addition to this, recent episodes, such as attempts of coup d’ état and the wish of indefinite reelection, illustrate the need to strengthen the democratic instruments under risk of destabilization of the political system.

 

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Data supplied by Latinobarómetro’s research, carried out in 2008, help to understand the continent’s democratic levels from different points of view (Latinobarómetro 2008). Some of the most interesting conclusions of the investigation are summarized in Chart I, and can be observed in Graph II, the values referred to Brazil being highlighted in a separate column.

In general, it is possible to state that the Latin America’s citizens perception about democracy may widen expressively. Democracy is seen, for instance, as a political system that favors the powerful and fails to ensure equality before law. Other relevant information is the disposition of ruling out democracy in favor of an authoritarian regime that offers better economic conditions. It is curious to observe that, in spite of the fact that satisfaction with democracy represents 37%, the support to said regime is 57%.

The investigation also shows that the citizen’s trust in institutions is not good, especially with relation to political parties that should act as intermediation instruments between the interests of the society and political decisions. Trust in Parliament, an eminently representative institution is also low. According to the arguments developed herein, these data about institutional trust are worrying, as they make civic commitment, social participation and public management difficult.

 

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If, as evidenced by Latinobarómetro 2008 data, there is a democratic deficit in Latin America, is it possible to expect that POB implementation contributes to reverse those indexes? Before that, is it feasible to believe in POB introduction without the trust levels being strengthened or that democracy consolidates effectively?

 

Synergy between budget and democracy:

strengthening social capital

 

An interesting way of thinking about the interaction between budget and democracy is to place the concept of social capital in the middle. Evans (1996) believes that social mobilization may promote a synergy relation between the State and society. This synergy, which translates into the encouragement of cooperative strategies, may reflect positively in the nation’s development.

Ways of interacting between the State and society are multiple. Evans highlights two modalities: complementariness (collaboration relation between public and private actors) and “internalization” (narrowing the ties between the citizens and the public environment). In the first case, it may be quoted the efficient supply of public goods and services as a classical example of complementariness. With relation to the second case, it is important to notice that internalization is not always so tangible, being essentially related to the construction of cooperation networks between State and social groups: “the shared trust and cooperation standards are manners of overcoming collective action problems”. (1996:196).

Evans inquires whether the decisive factor for producing synergic relations is the existence of prior social and economic conditions (provisions) or the capacity of constructing them (technologies). He states that social capital stock may impose restrictions to the synergy. In this way, the expressive levels of inequality or the nature of the political regime may create obstacles for the development of the cooperation between public power and society. The important point is that governmental institutions are also considered as provisions or technologies that may favor or inhibit social capital.

In this manner, robust and efficient government bureaucracies, provided with management administrative structures, stimulate social capital. Democratic regimes that effectively create participation and development in society also have the capacity to increase social capital stock. When the community participates actively in the solution of collective problems, it allows the capital to “escalate” upwards. In this case, trust relations and reciprocity standards are set, which migrate from the society’s base structures, benefiting public power organizations. This collaboration interaction enables the transfer of knowledge and strengthens the association between policy-makers and its addressees, potentiating society’s development.

The concept of social capital provides a powerful analytical framework to consider the introduction of POB in adverse contexts, in which low trust levels, democratic deficit and bureaucratic tradition prevail. Moreover, the partial implementation of program-budgeting reveals the imperative of a more functional agreement between planning and budgeting in most of the countries of Latin America. So, where should we start?

 

Conclusions

 

Before outlining some conclusions, it is worthwhile to make a brief recapitulation of the main arguments exposed up to now. Initially, it was demonstrated that the current stage of public budgeting has been designated as performance-oriented budgeting. Breaking with traditional budgeting models, POB means the incorporation of programming techniques (planning) and the acceptance of management strategies focused on the effectiveness of public spending.

For POB implementation, certain prerequisites are crucial (institutional, organizational and political), in particular, in the levels of trust existing in society. Without trust in public management and institutions, there is no reason to delegate responsibilities and to decentralize competences. However, the investigations carried out by Latinobarómetro 2008 show that Latin American countries not only have low trust levels, but they also evidence the need to strengthen democracy.

This reflexion, that seeks to join the theoretical contributions of political scientists with the practical experiences of public administrators, suggests that POB and democratic consolidation in Latin America should be indissoluble phenomena. Essentially, administrations attempt to pass from outdated, paternalistic, bureaucratic, formal, contaminated by corruption and favors models, to modern, efficient, transparent, ethical and socially responsible administrations. This transition of the patrimonial state towards a managerial state (post Weberian) implies democratic maturation and strengthening of political institutions.

The key for this transition seems to be synergy (Evans 1996). In the Latin American context, we may suppose that this is a two-way synergy. On the one hand, governments and public managers take care of the legality of their actions and give priority to their managers’ efficiency. Public institutions remodel their organizational processes, utilizing modern management techniques, so as to maximize marginal efficiency of the resources taken from society.

On the other hand, civil society acquires civic competences able to provide their understanding of public policies, to promote their commitment in public policy making, in planning formulation, in budget discussion, in the evaluation of the results obtained and in supervising legislation enforcement. Perhaps the exercise of democracy –debate, discussion, decision-making- is the most suitable solution to enable training in public policies, awareness about collective action topics, building of an active vigilance position, encouragement of social participation and civic involvement:

 

To acquire enlightened understanding of possible government actions and policies also requires freedom of expression. To acquire civic competence, citizens need opportunities to express their opinions, learn from one another; commit themselves to discussion and decision; read, listen to, ask the specialists, political candidates and people in whose criteria they trust. (Dahl 2005)

 

Provided it gets rid of archaic institutional and organizational model structures, synergy between efficient public managers and socially committed citizens is a double impulse for the implementation of performance-oriented budgeting and democratic consolidation.

 

 

References

 

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Core, Fabiano Garcia. Reforma gerencial dos processos de planejamento e orçamento. Texto para discussão n. 44 – ENAP. Brasilia: ENAP, 2001.

Core, Fabiano Garcia. Reformas orçamentárias no Brasil: uma trajetória de tradição e formalismo na alocação dos recursos públicos. Revista ABOP, v. 23, n. 47, 2005.

Dahl, Robert. Democracy and its critics. New Haven and London: Yale University Press, 1989.

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Dahl, Robert. What Political Institutions Does Large-Scale Democracy Require? Political Science Quarterly. v. 120, n. 2, 2005

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Giacomoni, James. Orçamento Público. San Pablo: Atlas, 2007.

Latinobarômetro. 2008 Report. Available at: http://www.latinobarometro.org/

Makón, Marcos Pedro. ¿La gestión por resultados es sinónimo de presupuesto por resultados? (Is Performance Management a Synonym of Performance Budget?) Revista Internacional de Presupuesto Público, Year 36, Issue No. 66, 2008.

Moises, José Álvaro. A desconfiança nas instituições democráticas. Opinião Pública,   Campinas, Volume No. 11,  No. 1,  2005.

Power, Timothy J.; Jamison, Giselle D. Desconfiança política na América Latina. Opinião Pública, Campinas,  Volume No. 11, No. 1,  2005.

Robinson, Marc and Brumby, Jim. Does Performance Budgeting Work? An Analytical Review of the Empirical Literature. Article for the International Monetary Fund, 2005.

Schick, Allen. The Performing State: Reflection on an idea whose time has come but whose implementation has not. OECD Journal on Budgeting. Volume No. 3, No. 2, 2003.

Schick, Allen. An Agenda for budgeting. Concept article to establish a budgetary network in the Latin American Region. Prepared for a meeting at the Inter-American Development Bank, 2005.

Schick, Allen. Getting Performance Budgeting to Perform. International Conference on Public Budget. Mexico, 2008.