Privatization in New Public Management:
Assessing its Role and Reception in Tanzania
-Robin Collins-

New Public Management (NPM) is a range of sometimes controversial government reforms with origins in several developed industrial countries. This paper focusses on the theory and performance of the privatization component of NPM. It assesses some of the current literature to consider if reform performance is consistent with its promise, but also whether macro-economic privatization can easily be distinguished from NPM privatization. It considers the impact of privatization in Tanzania, a poor African developing nation that has been subjected to several waves of structural adjustment, reform and economic decline. Sweden and Denmark’s experience with reforms will be briefly looked at to compare the NPM experience of two developed social-democratic societies with that of post-socialist Tanzania.

Privatization and New Public Management

NPM reforms that favour the private sector are numerous and dominate the NPM quiver. However, it has been said that private sector advantages are incidental to the vision because the primary motivation of NPM is to improve the efficiency and service delivery of government functions and institutions¹. “Hiving off” government functions, establishing executive agencies,² developing private-public partnerships, and contracting-out services are different strands of the privatization aspect of New Public Management reform policy. Cowan describes privatization as the “transfer of a function, activity, or organization from the public to the private sector”. The process can be one of partial or full transferal of assets by sale to individuals or firms. Control may be contracted out, leased or franchised. In some cases, management contracting is employed and government maintains ownership for a period prior to full privatization. Or private managers can be contracted to oversee state-owned enterprises for a three to five year period (Cowan:6-7).

Much of the NPM literature under consideration originates in the "public choice" arena. Reform supporters generally argue that public institutions are inherently less efficient and less effective than private enterprises because property that is held privately, and for which there is personal risk, encourages greater efficiencies. A related assumption is that state owned enterprises (SOE) are not designed to be efficient but to provide political perks to supporters, and to redistribute national income. “Therefore the more politically controlled an SOE [is], the less efficient” it is (Molano).
Privatization is not always included in the core list of NPM reforms (Polidano:3). Yet the outright shedding of state ownership and control indicates a willingness to radically restructure governments and to emphatically shift focus from “rowing” to “steering” mode. Write Osborne and Gaebler (47) in defence of the privatization of the delivery of services: “It makes sense to put the delivery of many public services in private hands (whether for-profit or nonprofit), if by doing so a government can get more effectiveness, efficiency, equity, or accountability. But we should not mistake this for some grand ideology of privatizing government.”

The benefits of outsourcing public services to private contractors are said to include better access to improved operational skills. But one study³, based on almost 700 interviews from top private and public sector managers in the United States, United Kingdom and continental Europe, found the achievement of best practices, cost discipline, improved management skills and quality of service was often problematic. Public service senior managers believed the drawbacks of outsourcing outweighed the benefits. A skills and knowledge base was lost, there was less overall operational efficiency, staff were demotivated, and there was a reduced ability to deal with organizational and community needs. Outsourcing⁴ was thought to lead to a more adversarial relationship between public service hosts and suppliers. Despite identifiable abilities of public service managers in managing contracts, “relationships between public service organizations and their outsource service providers are reported as becoming more distant. This is considered to have a damaging effect on the ability to meet agreed standards of service.” (Kakabadse and Kakabadse:412) Pollitt illustrates his skepticism by offering a study of ten OECD countries that concluded that reliable measures of real improvements in efficiency and effectiveness as a result of reforms are rare (Pollitt, also Bennett in Minogues, Boubaki and Cosset⁵).

A somewhat counterintuitive concern is that the rolled-back state, having left provision of public goods and services to the market, will (problematically) position the government as the sole enabling institution -- thereby strengthening rather than weakening the state’s hierarchical position (Wright in Knill and Lehmkuhl:50). While this is an argument suggesting that privatization concentrates the state’s power, others may believe the opposite process would more likely result. Premfors notes that in one convincing accounting of reforms history, the developmental sequence predicted by NPM has “only limited or no validity with respect to the reform trajectory of most nations”⁶. In this view, much of what is considered radical state reform in developing countries has little to do with NPM reform, particularly if there is centralization in evidence and the absence of line management decentralization⁷ (Premfors:146). Skepticism about the utility and universality of privatization is apparent also in critiques by Bennet⁸ and others who note that the pace of privatization will be driven by the income level of each country -- a key consideration for Sub-Saharan Africa, other developing regions and transitional economies, many of which have been subject to broad-based restructuring disciplines.

Is it possible, then, to distinguish NPM-privatization from privatization policy that is part of a major political and macro-economic transformation (such as in the transition states of Eastern Europe and in the developing world)? The dilemma is complicated by the fact that in most cases the rationale, the funders, the advocacy, the political and economic pressures and vulnerabilities, and the ultimate objectives are the same or very similar.

Tanzania

In the developing world, there has been convincing pressure to accept significant changes in the democratic process and structure of government -- including bold privatization obligations -- as a precondition for access to World Bank (WB) and International Monetary Fund (IMF) development aid. This process was dominant in 1980s structural adjustment programs (SAP)⁹. Successful privatization has generally been proceeding at a relatively slow pace in many developing nations. McCourt (155) suggests that imperfectly developed markets, weak administrative capacity, and uncompetitive private sectors can be the key reasons for this. Initially macro-economic structural changes, which included privatized productive capacity, were not directly linked to the broader NPM culture.

The progress of privatization and NPM reform in Tanzania is of particular interest for several reasons. Tanzania’s experiment with “African socialism” under then-President Julius Nyerere, from 1967 (the advent of the Arusha Declaration) and into the 1980s, was a widely monitored (and in some circles, highly-regarded) experiment in state-centralization, nationalization and stimulation of production, and self-reliance through the eschewal of foreign control.¹⁰ Tanzania was without any significant industrial base at the time of independence¹¹ in 1961. The state was used to bolster the dominant agriculture sector and underdeveloped industrial sector. The effect of Nyerere’s nationalization policy was the “massive exclusion of the private sector”. By 1967 the state accounted for a full 60% of “manufacturing output, employment and installed capacity” (Hewitt et al.:100). However there was also a fundamental political function in the building up of state enterprises -- this was Nyerere’s idealistic project of creating an industrial expertise and economic base in support of a self-reliant postcolonial Tanzania.

The complete reversal that eventually overtook Tanzania came in the form of a foreign debt load, dependency on international financial institutions and severe impoverishment of the population -- but also the privatization of nationalized enterprises. Notes Etukudo,

"as far as sub-Saharan Africa is concerned, the issue is not whether States should or should not continue to own enterprises. Given the reason for the creation of some of these public enterprises -- filling the vacuum created by the absence of an indigenous middle class -- complete divestiture of all state enterprises is doubtful. But there is a need to find a solution to problems arising from state ownership." (Etukudo:7)

Between 1981 and 1984, as economic pressures mounted, the Tanzanian government relented somewhat from its state monopoly stance and allowed cooperatives to be established in place of some state enterprises (Ramdas:30). As Tanzania’s economy faltered further, the self-reliance model was “gradually jettisoned in favour of a market-oriented approach” (Kaiser:231). The privatization of parastatals (state-owned and controlled enterprises) began as early as 1986 in coordination with the World Bank/IMF, but it was not then explicitly part of any New Public Management-type regimen. Gradually, however, parastatal reform and civil service reform came to be coordinated activities.

Civil service reform measures were undertaken in conformity with Tanzania’s Economic Recovery Program (ERP), one of a series of reform programs beginning in the middle 1980s. Reform of the financial institutions, parastatals and the public service became a coordinated priority for the government in 1989. Reform was intended to provide a newly emerging market economy with a “flexible, entrepreneurial and results-oriented civil service -- a civil service that will not be a bottleneck to private business initiatives.” This was the voice of NPM that was speaking. (Ntukamazina :45).

In 1993 Tanzania, in collaboration with the World Bank, developed a comprehensive reform implementation package “in order to increase efficiency and effectiveness in service delivery”. It outlined a process for the reduction of government operations through

"hiving off to private hire agencies functions that do not form the core business of the Government but which are critical to the delivery of government services to the people. This exercise is in line with the new Government policy of withdrawing from direct production and direct-delivery of services to assume its new role of facilitation, regulation and monitoring of private sector operations^12." (O&E)

By 1996, the Mkapa government’s public service reform program (PSRP) included a signficant divestiture component aimed at transportation and utility parastatals and with the objective of achieving “better service at affordable prices to the consumer”. Parastatals that were put on the block included the harbour authority, urban water, railways commission, electricity supply, and the postal corporation. (These types of utility sectors were likewise privatized during NPM-type campaigns in the UK, New Zealand and Canada.)

The initiation of reforms seemed fiscally driven, but the language of most subsequent implementation certainly shows a NPM-style approach. As Mtatifikolo (65-73) points out, the “cornerstone” objectives from 1993 to the present emphasize the reduction of the public sector role in “directly productive sectors (agriculture, industry, trade, mining) and [the]facilitating [of] private sector involvement in those sectors”. The process has clearly been challenging and not entirely successful, for as Mtatifikolo notes, “a still non optimal civil service and parastatal sector, and an underdeveloped private sector imply that nothing much is feasible in the short run!” (73)

By year 2000, the second phase of parastatal structural reform had resulted in half of 400 parastatals -- including utilities, manufacturing and agricultural enterprises -- being

"removed from government control through liquidation, share sale or asset sale...[The] rather tough agenda of privatising large infrastructure public enterprises had just begun in 2001. The major pending privatisation in infrastructure are railways, power and remaining port services [and to follow also are] the national microfinance bank, the National Insurance Company, cashew nut factories, and some ranches and state farms. The government has committed itself to selling all public enterprises by 2004." [emphasis added] (OECD/AfDB 2002)

However, hiving off non-core functions may be particularly ineffective in an economy as unstable and fragile as Tanzania’s, and where the government is unprepared but compelled to restructure both its relationship with its key productive sectors and its administration at the same time. There may be no enthusiasm for a process of all-sided reform where the goals are unclear, and the passage to date has been particularly rough and unpleasant. Mwapachu informs us that,

"while there is a clear congruence between the development ideological shift and the re-defined role of the state, [what] remains uncertain is whether the new role of the state is underpinned by a new vision of government, a vision which largely shifts government’s role from ‘rowing’ to ‘steering’..." (Mwapachu:106)

The Tanzanian government describes the parastatal reforms as being “set firmly in the context of the broader reforms” intended to both expand the private sector¹³ role in the economy, permit the government to “gear the Tanzania public sector in its new role as a facilitator” (Mandera:3) and provide basic public services, including national defence, security, revenue collection, welfare, health and education¹⁴.

Some evidence suggests that even core government services (certainly health care and schooling by most definitions) were being serviced by the private sector. 1993 data on non-state schooling in nine districts show “profound and far-reaching growth” in nongovernmental organization¹⁵ input. The state still played a dominant role at the primary and university levels, but about 87% of nursery schooling was provided by Christian religious organizations and private and public companies and individuals. Almost 61% of secondary education was provided by “religious bodies, community organizations, Development Trusts¹⁶ and the state-sponsored national parents’ organization”. Unlike in education, the state performed most services (56.5% of hospitals, 62.6% of dispensaries, 75.7% of health centres. Non-state players were primarily Christian and Muslim religious and Asian community organizations, but also individuals. Two-thirds of the income of nongovernmental health providers come from user fees. Some hold concerns about the potential for patronage in the privatization process that favour Development Trusts without establishing formal accountability boards in local communities (Kiondo:161-3).

The Civil Service Reform in Tanzania National Symposium, held in 1998, concluded that many were concerned that the reform program was donor-driven and thus likely to “engender negative implications for the future ownership, integrity, and sustainability of the program as a whole”.¹⁷ There was nonetheless a consensus that government should shift many of its historical functions to the private sector, and closely monitor those that remained, such as procurement and contracting tasks. (Regumamu:182) The process of sustaining the private sector shift is a “far more complicated process since it involves fundamental changes [in] behaviour and norms”. Some see public sector reform as a key mechanism in the switch, and they are optimistic that donors showing signs of reducing dependencies through “the idea of partnership with shared responsibility over outcomes” is helpful (Hewitt et al.:107, Therkildsen:64).

Market liberalization (the opening of freely trading markets) has not been particularly successful in Tanzania, despite reform programs -- resistance to change has not stalled reform so much as it has reversed reform policy, according to Brian Cooksey.¹⁸ The current failure of market liberalisation in agriculture (the topic of Cooksey’s study) results from the “counter-strategy pursued by incumbent elites to ward off the threat posed by the ‘private sector’”. Because of this reticence, Cooksey argues, structural reforms, increased investment and “a respectable level of growth have not translated into improvements at the micro level”. The 2001/2002 Human Developement Report found “no evidence of a significant reduction in rural food and basic needs poverty [in the decade] between 1991/92 and 2000/01” -- a serious concern for NPM advocates who expect the rhetoric of neo-liberalism to quickly or easily percolate into the developing world agendas. A contrary and more positive view is that the “situation has changed and there is now fairly solid support for the reforms. At present the constraint is rather the lack of competence and lack of resources to see the reforms through in an effective manner.” (Bigsten/OECD)

Comparing the Scandinavian model

Denmark’s social-democratic period in the 1960s and 1970s was followed by a series of Conservative-Liberal coalition governments from 1982 to 1993. While the governments of the 1980s advanced reform programs and “rhetoric in favor of contracting out” (Christiansen:274) as part of their modernization plan,¹⁹ the outsourcing and privatization components were neither popular nor implemented in any significant way in practice. For example, a 1995 survey of outsourced cleaning contracts showed that “the use of private firms has not increased in the last 20 years”. A 1994-1996 survey of outsourcing found only 39 contracts in 275 municipalities, accounting for only 0.15% of total operating costs (Christiansen:285). As Christiansen concludes, “In sum, the level of competition in the provision of public services is low, and nothing -- or very little -- [and] has happened over the last decade, when competition became part of the official reform ideology.”

In Denmark market-style reforms were always limited. When “pool scheme” day care was introduced, only 2% of children were registered in the new private facilities. In Sweden, by 1999 13% of children under six were receiving similar care by private providers (Green-Pedersen:280). Danish private schools continue to exist, but 85% of funding revenue is provided by public taxation. Notes the OECD country report for Denmark (2000), service delivery contracting out has been moderate, aside from in the construction sector where not surprisingly it is widespread. State ownership, however, “has never been a prevalent feature of the Danish model compared to a range of other OECD countries.” The relatively few state enterprises that do or did exist, have been, or are planned to be, sold off.

Resistance to and support for privatization of public services has been politically loaded in both Sweden and Denmark. Social-democratic governments have opposed NPM-like policies while in opposition (as have trade unions), but they have to lesser or greater degrees supported some reforms when in office -- as long as the welfare state culture has not been perceived to be unduly distorted as a result.
The limited acceptance of results-based management was to strengthen centralized government control during a season of radical decentralization and thereby transform Swedish society in the direction of what Premfors calls a new “federation of welfare communes”. Hardly hard core new public management.

A period of cold-blooded neo-liberalism was brief in Sweden and prevailed under the leadership of a Conservative Party Prime Minister in 1991. He proposed “a big dose of privatization” (including a projected sale of more than thirty state enterprises). But in practice “significant parts of the privatization and ‘marketization’ scheme were halted or at least postponed.” Apart from a few planned sales and the transformation of a moderate number of state authorities into state corporations, structural reforms consisted primarily of “streamlining” and “buyer-seller separation” (Premfors:152).

More significantly, the Social-Democrats were returned to power in 1994, in what Premfors describes as a clear “vote of confidence in the Swedish welfare state, or at a minimum, as a protest against any radical tampering with it.” The privatization project was substantially slowed down and no significant welfare state functionality was dismantled. Where privatization did occur, it was in a marginal sector. The impact of privatization and marketization, therefore, “has been small, passing or almost negligible” (Premfors:158). That is the same assessment drawn by Christiansen for Denmark, who concludes that with very corporatist institutions in the Danish public sector “the political costs involved in path-breaking reform seem large. Not only in relation to market reform, but in general, it can be argued that the Danish, and with that, other Scandinavian, models are not conducive to changes and reforms” (Christiansen:291).

Conclusions

Antagonism to reform in Tanzania was a symptom of suspicions grown out of the foreign colonial legacy which had extracted resources but left the country underdeveloped and without an indigenous entrepreneurial business class or signficant industry. The original (pre-reform era) nationalization of production and establishment of state enterprises were intended to kick start the development cycle. While the experiment failed in various ways, the project seemed worthy to most Tanzanians, and especially many from within the governing party elite and government bureaucracy. The continuing radical reversal of the self-reliant state in the 1990s was apparently at the request of international financial institutions that had tied Tanzania to structural adjustment reforms in the 1980s. The SAP reforms brought dubious advantage and arguable disadvantage to Tanzanians and many other developing nations. Reforms -- especially radical reforms -- were therefore not seen as panaceas by everyone. “Extreme resource scarcity, external dependency and poorly functioning markets are not so readily resolvable by simple commitment to reform” (Therkildsen:69).

There are several contradictory views on the capacity of NPM privatization measures to substantially improve efficiencies and function effectiveness. The record is spotty generally, but expectations are particularly demanding for the developing world. Some efforts in Tanzania have failed or been intentionally sabotaged, but it is too early to evaluate the current phase of reforms that are now under way, and which are unambiguously NPM-motivated. Those reforms will be tested within the climate of a country completely stripped of its parastatal legacy, so it is difficult to predict results.

OECD country experience with new public management has been mixed as well. Danes and Swedes have been receptive where they have not perceived government reforms as threatening to the welfarist state. State enterprises were never extensive in Denmark and Sweden, privatizated social service options either had a long pre-NPM history or were newly introduced as part of a public-private matrix. They were not enthusiastically embraced by a large proportion of citizens, but neither were the ones eventually introduced particularly radical. Nordic communitarian norms appear to have been left intact.

Privatization, then, has had a mixed reception in many developing world countries, including Sub-Saharan Africa, as well as in developed social-democratic states and elsewhere. In all cases there has been some suspicion that the sale of public assets to private individuals will diminish the collective property (and its associated motivations) in favour of individual private property. Clearly efficiencies and effectiveness claimed by reformers are the subject of debate even in those quixotic OECD countries that swallowed NPM whole. Broader issues and ideals, such as accountability, self-reliance and communitarian values may be as significant, and if so, will undoubtedly determine the progress of the next round of reforms in Tanzania.

NOTES

¹ This is a common theme in Osborne and Gaebler’s Reinventing Government, and reflected in Premfors’ mention of the “everyone’s doing it -- even the socialists” argument.

² Executive agencies are not necessarily associated with privatization. In Tanzania, the view was that while many government functions were non-core, they should remain in the public service because they were necessarily public entities. “The executive agency was seen as an organization solution, which would keep public services within government while promising efficiency and effectiveness improvements, by allowing greater autonomy and flexibility to operational managers” (Caulfield:213). Where the agencies have not succeeded, Caulfield suggests that government bureaucrats were not held to greater levels of accountability, therefore likely “leading to a repeat of the failures of the parastatals.”

³ Cranfield School of Management survey.

⁴ One example of contracting-in offered by Anderson and Van Crowder is a Ugandan case of public sector expertise being called upon by nongovernmental organizations “to deliver what appeared to be effective extension services targeted to small-scale producers of food crops” (page 376). Outright contracting-out has been compared to private-public partnerships and other pluralistic combinations. In some studies both the private-only contracting-out approach (“ignore[ing] public goods and concerns”) and public sector expansion (“characterized by ineffectiveness and inefficiencies”) has shown to be less constructive and effective than combined arrangements or even contracting-in arrangements. Notes Anderson and Van Crowder, to protect the public good and “adequate knowledge and experience for overseeing and monitoring”, the public sector could or should remain active in service delivery -- “government services can be made more responsive and private organizations are not always flexible and efficient. Socio-economic realities both internationally and locally suggest that it will be necessary to promote public-private coalitions and to strengthen the public sector’s ability to commission and regulate services.” (Anderson:382, emphasis added).

⁵ The authors found that while capital expenditures increased significantly, profitability increased only slightly although not significantly, and both efficiency and output decreased slightly (although not significantly). They also suggest that a longer period of observation is required to assess whether the firms are “indeed turned around as anticipated by the privatization theory”.

⁶ A similar, if less strenuous. argument is given to this theme by Pollitt and Bouckaert in their chapter “Trajectories of Modernization and Reform”.

⁷ While not formulating a critique of NPM reforms for countries such as Tanzania and Uganda, he suggests that eclecticism in approach may be useful -- even a “judicious blend of old-fashioned centralisation adn NPM-style decentralisation”. (Polidano:24) Premfors refers to McCourt’s similar view that privatization in developing countries (known as retrenchment in much of Africa) is driven by an effort to redress fiscal and economic imbalances and therefore part of the “Washington model” of public sector reform, rather than NPM pure and simple.

⁸ In his review of editor Bennett’s book, Minogue criticizes the weakness of articles that favour privatization. Bennett reports that there is a dearth of conclusive evidence for significant efficiency improvements. He also notes the little attention given to equity issues. Osbone and Gaebler (46) will quickly point out that the public sector is expected to perform better than the private sector on equity questions.

⁹ This was driven, according to Martinussen, by the “the neo-classical counter-revolution”, which at the end of the decade eventually relented in deference to a “more balanced approach [emerging] between the state-managed and the market-led model” (Martinussen:263). SAP excesses received a wide measure of criticism for policies resulting in or coincident with a rise in unemployment, falling nutritional levels and primary school enrollment, but also the enrichment of private bankers that “benefit from lending directly to the Bank and co-financing World Bank projects” (Caulfield in Agere:279). In Africa, poverty levels in the Least Developed Countries (LDC) worsened from the mid 1960s (55.8% lived below $1 per day) to the late 1990s (64.9%) despite the substantial inputs of the International Financial Institutions (IFI) -- and in particular, the World Bank and IMF. The World Development Report in 1997 (a publication fo the WB), in a significant refocussing of its approach, called for a strengthening of the state apparatus to facilitate development, particularly in “areas that are its legitimate function. An institutional vacuum of significant proportions has emerged in many parts of Sub-Saharan Africa, leading to increased crime and an absence of security, affecting investment and growth”. For former socialist-orientated, single-party states like Tanzania, there was some resonance to the advice offered to the transition states of Central and Eastern Europe in support of “reorienting the state toward the task of ‘steering, not rowing’”.

¹⁰ See http://www3.sympatico.ca/lothcol/collins/tanzanian_odds.html. While Tanzania during the Nyerere period emphasized national self-reliance, it did not refuse foreign investment -- or aid -- entirely.

¹¹ At independence, Tanzania had 3 parastatals. By 1985 there were 450.

¹² O&E reforms were accompanied by the establishment of executive agencies, which had a similar mission of transferring functions to semiautonomous organizations, operating as arm’s-length businesses entities. It is quite clear that the purpose of the program was to institutionalize the withdrawal of the state from production sector functions. The government workforce was reduced in size by 17% in the years between 1992 and 1998, with the majority of employees based only in “social services, police, and local government” after the retrenchment process was completed.

¹³ To the question “but isn’t it dangerous to sell our utilities”, the government’s response is “Stop worrying, government is not selling utilities. It will lease, concede or sell part of the shares to investors. Robust regulatory authorities are being established to balance the interests of the investors, consumers and Government as co-owners.” (PRSC)

¹⁴ The IMF and IDA Poverty Reduction Strategy Paper for Tanzania (November 2000) refers to a government focus on poverty intervention in primary education, primary health care, agricultural research and extension, rural roads, water, the judiciary, and HIV/AIDS”, including through abolition of primary school fees, and a doubling of present health care expenditures.

¹⁵ Kiondo notes that in 1993 there were 224 nationally registered NGOs in Tanzania, as compared to 163 in 1990. There were 800 to 1000 district Development Trusts, a large but unknown number of registered and unregistered CDAs (community level development activity), and a host of women’s savings societies. (Kiondo:109-110)

¹⁶ Notes Kiondo, “In four of the five districts where they were present, Development Trusts were financed at least partly by local taxes or cesses.” (page 161)

¹⁷ This was of particular concern if the owners were not indigenous. A 1998 survey of Tanzanian public servants found that there was a generally positive perception of the private sector and towards business people as “the engine” for growth, but it was also the belief of most that government’s role was to assist indigenous investors and to protect them from foreign competition.

¹⁸ “A particular concern has been the lack of commitment among many leading politicians to the reform efforts. During the earlier stages of the process, the government undertook reforms because it felt it had no choice. Many saw the reforms not as a positive choice, but rather as a temporary setback. This was not a good basis for a successful transformation of the economy. ” (Bigsten:109)

¹⁹ The concept of “best and cheapest” was also supported by the Left opposition in Parliament.