Historically in America two different institutional approaches to management science have developed: one in the private sector and one in the public sector. Recently, this conventional taxonomy has been challenged, and around the country there has been emerging a more generic approach to management. In response to this, public administration theorists have developed a new body of literature emphasizing the differences between the two sectors. The central purpose of this paper is to explore the relationship between public sector and private sector management within the context of available literature. As such, the key substantive issue discussed here is whether there is an inherent conflict between the rational, private management model with its criteria of economic efficiency and the political public management model with its criteria of consensus and compromise.
A central element of recent reform efforts associated with “reinventing government” is that public organizations should import managerial processes and behavior from the private sector (Box, 1999). In particular, these efforts suggest that public managers should seek to emulate the supposedly successful techniques of their private sector counterparts. Indeed, this formula for public sector success predates recent reform movements, and has been a recurring theme in public policy. For example, the reform movement in American municipal government during the early decades of the twentieth century emphasized the benefits of business-like behavior (Welch and Bledsoe, 1988).
However, the adoption of private sector models has been viewed with much skepticism in the literature on public administration and public management. The core objection is summarized in Sayre’s view that public and private organizations are “fundamentally alike in all unimportant respects.” This phrase has been given wider currency by Allison who proceeds to argue, “the notion that there is any significant body of private management practices and skills that can be transferred directly to public management tasks in a way that produces significant improvement is wrong”.
The argument of this paper is that Sayre’s assertion is clearly supported by theoretical evidence from several prominent researchers in the field of public administration. This paper begins by providing definitions of public and private organizations. Following the definitions, the discussion will continue with an examination of the similarities between public and private administration. Since both public and private sector administration involve the management of organizational resources, elements of the managerial environment will be the same for both public and private managers. The discussion of similarities will be followed by an examination of the important differences between the two administrative settings. Although some administrative activities are common to both public and private sectors, major differences are also evident.
In this paper, the theoretical arguments on the differences between private firms and public agencies are reviewed and four hypotheses are identified on the impact of public administration on organizational environments, goals, structures, and managerial values. Evidence from several theoretical studies of differences between public agencies and private firms is critically evaluated. All four of the hypotheses are supported by a majority of the theoretical arguments.
Throughout this paper, the terms “management” and “administration” are used synonymously to indicate managerial activity in either sector. Management is commonly defined as ‘the accomplishment of purpose through the organized effort of others” .
Evidence of the distinctiveness of public management was gathered in two main stages. First, a “keywords in title or abstract” search was undertaken through the MDUSA database search engine through the University of Baltimore’s Langsdale library information system. Second, journal articles, books, and book chapters cited in the sources identified in stage one were obtained. This search strategy means that unpublished papers on public/private differences are omitted from the analysis. The results summarized below may, therefore, overstate the distinctiveness of public organizations, on the assumption that papers are more likely to be published if they present differences rather than similarities.
Definitions of Public and Private Organizations
Public and private have been used for centuries in relation to fundamental issues and values in society (Perry and Rainey, 1988). Dictionaries cite the origins of public in the Latin word for people, and define it as referring to matters pertaining to the people of a community, nation, or state. Private derives from the Latin word for deprived or set apart, as in being deprived of public office or set apart from government as a personal matter. Accordingly, public organizations often have been equated with governmental agencies and private organizations have been identified as all other organizations, particularly business firms.
Similarities and differences between the public and private sectors have frequently been debated in the literature on public administration, politics, and business. The main conventional distinction between public and private organizations is their ownership. Whereas private firms are owned by entrepreneurs or shareholders, public agencies are owned collectively by members of political communities. This distinction is associated with two further public/private contrasts. First, unlike their private counterparts, public agencies are funded largely by taxation rather than fees paid directly by customers. Secondly, public sector organizations are controlled predominantly by political forces, not market forces. In other words, the primary constraints are imposed by the political system rather than the economic system.
A critique of the comparative literature shows that a majority of authors regard ownership as a crucial distinction between government and private organizations. For government organizations, ownership rights cannot be transferred among individuals, and risk (at least capital risk) is therefore highly diffused. In the private sector, management is treated as a productive input and is efficiently valued in the market. In the public sector, the distribution of managerial ability among organizations has little correspondence to its value as a productive input (Clarkson, 1980). The authors generally agreed that public ownership more heavily subjects an organization to the institutional controls of government, as opposed to economic markets and other nongovernmental control processes.
It is important to distinguish between these three variables of ownership, funding, and control because they have different theoretical effects on organizational behavior. For example, the economic theory of property rights suggests that common ownership leads to lower efficiency in the public sector. In private organizations, owners and shareholders have a direct monetary incentive to monitor and control the behavior of managers. Similarly, managers themselves are likely to benefit from better performance, either because they own company shares or because their pay is linked to financial success. By contrast, public sector managers do not usually obtain direct financial benefits from higher organizational efficiency.
The significance of the funding dimension of public organizations is emphasized by public choice theory. According to this perspective, organizations that receive revenues from political sponsors are likely to be unresponsive to the preferences of the people who receive their services (Boyne, 1998). Finally, organizations that are subject to political rather than economic controls are likely to face multiple sources of authority that are potentially conflicting. Bozeman (1987) argues that political control is the essence of public organization: “all organizations are public because political authority affects some of the behavior and processes of all organizations…. Public pertains to the effects of political authority.”
These three dimensions of the distinctness of public organizations represent the highest level in this evaluation of the differences between public and private administration. The discussion now turns to specific similarities and differences between management in the two sectors.
Many elements of public administration have their roots in the private sector. In both settings, managers and those to whom they are accountable have an interest in running programs and other activities that are properly designed, appropriately directed to meeting their intended goals, efficient in expenditure of organizational resources, and effective in their impacts. Public and private managers both are concerned with meeting their staffing needs, motivating subordinates, obtaining financing, and otherwise conducting their operations so as to promote their programs’ survival and maximum impact. Each of these similarities is discussed more fully below.
Luther Gulick and Lyndall Urwick’s Papers on the Science of Administration, published in 1937, identified a set of seven general management principles that have become professional watchwords for management in any setting: planning, organizing, staffing, directing, coordinating, reporting, and budgeting (collectively known by the acronym POSDCORB). Gulick and Urwick reemphasized earlier references to the importance of these administrative concepts, declared their applicability to almost any human organization regardless of what the organization was or why it existed, and stressed the fundamental desirability of efficiency as the underlying goal for administrative science (Gordon and Milakovich, 1995). This section draws heavily on Gulick and Urwick as cited in Gordon and Milakovich’s Public Administration in America.
Planning. All managers engage in a set of activities designed to work out in broad outline the things that need to be done and the methods for doing them to accomplish the purposes set for the enterprise. This includes formulating a product/market strategy to allow the organization to exploit its core competencies to meet the demands of its external environment.
Organizing. Whether in the public or private sector, managers must establish a formal structure of authority through which work subdivisions are arranged, defined, and coordinated for the defined objectives. This includes aligning the organization’s administrative, responsibility, and account structures with its strategy.
Staffing. All organizations require people to perform work. Therefore, managers in both sectors are concerned with the whole personnel function of bringing in and training the staff and maintaining favorable conditions of work. This includes motivating and inspiring people to serve the interests of the organization, recruiting, training, and indoctrinating them, and coordinating their activities.
Directing. Managers in both settings are also concerned with the continuous task of making decisions and embodying them in specific and general orders and instructions and serving as the leader of the enterprise. This includes creating a culture and a web of personal relationships that strengthens and maintains the organization’s core competencies and reinforces its formal structures.
Coordinating. Work in all large organizations is complex. Therefore, both public and private sector managers are concerned with the all-important duty of interrelating the various parts of the work. This includes integrating the work of divisions, departments, and functions to most efficiently and effectively complete the work.
Reporting. Communication is essential to any enterprise. As such, all managers must keep those to whom they are responsible informed as to what is going on, which includes keeping themselves and their subordinates informed through records, research, and inspection. This includes reporting to higher-level authorities on environmental forces and surprises, opportunities and threats, strengths and weakness, efforts and accomplishments.
Budgeting. All managers are concerned with obtaining financing to promote their programs’ survival and maximum impact. Financing includes all that goes with budgeting in the form of fiscal planning, accounting, and control, including assessing alternative investments and policies, programming the consequences of investment decisions and policy commitments, and target setting.
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