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Erschienen in: Public Organization Review 1/2016

25.11.2014

The Failure of Theory to Predict the Way Public Sector Organisation Responds to its Organisational Environment and the Need for a Mosaic-View of Organisational Theory

verfasst von: Bryane Michael, Maja Popov

Erschienen in: Public Organization Review | Ausgabe 1/2016

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Abstract

What does theory predict about the way government size and structure adapts to changes in government’s organisational environment (particularly to uncertainty and complexity)? In this paper, we review the theory and evidence from the literature about the way government size adjusts to such changes -- particularly to changes in macroeconomic fundamentals like gross national product (GDP). We find that the traditional theories from the organisational theory literature—like the contingency-based view, resource-based view and the rational choice view -- fail to provide global explanations for much of the variation we see in the world around us. Instead, theorists need to adopt a “mosaic view” of organisational theory -- accepting that different theories may explain the way public sector size and structure responds to the uncertainty and variability in its (macroeconomic) organisational environment. We also provide several empirical hypotheses to test such a mosaic-view.

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Fußnoten
1
Michael and Popov (2011) provide an extended (200-page) working paper version of this paper under the title The Size and Structure of Government available online. The working paper contains an extended discussion of size and structure as well as the model and the empirical results we call for in this paper.
 
2
Much organisational theorising over the recent 10–20 years has exactly argued against attempts like ours to develop simple definitions and tests of theory. They have sought to incorporate symbolic and interpretive understandings of organisation - while accepting multiple perspectives (Hatch, 1989).
 
3
The lack of detailed and rigorous studies in public sector organisational theory may explain why no such literature review exists to date. Except for Rainey (2009), we know of no broad and wide-reaching literature review of organisational theories as applied in the public sector context.
 
4
Roy (2009) provides one of the most obvious examples of a study looking at the issue of changes in government size to changes in macroeconomic variables from an economist’s perspective. Readers interested in following this literature can see his excellent overview. Yet, readers steeped in organisational theory (or macroeconomics) will find our import of economic studies into the organisational theory realm rather unsettling.
 
5
We assume, like most authors writing about the size of government, that government expenditure as a percent of GDP serves as the most relevant indicator of such size. Other measures used in the literature include employment by the government (at various levels), levels of government consumption, government revenue (earned through tax and non-tax methods). These other measures of government size correlate highly with government expenditure.
 
6
The citations we provide are dated because authors stopped writing about the topic. Durevall and Henrekson (2011) describe the search for such theorising in their title as a “futile quest.”
 
7
The canonical definition of an organisational environment from the organizational theory literature defines such an environment as the “forces outside the boundaries [of the organization] that can impact upon it [the organization]” (Hatch 2006). In this paper, we focus on the macroeconomic environment and leave out the other elements such as legal environment, societal, and other environmental factors in order to limit the scope of our analysis.
 
8
Indeed, underlying productivity, trade and other factors may affect government while simultaneously affecting government agencies and departments. For example, an IT innovation (like Facebook) may show itself as increased volatility in the IT sector. However, the innovation itself may reduce spending on information collection for certain types of social services (Caliendo et al. 2013).
 
9
Government spending will affect the macroeconomy -- just like changes in the macroeconomy may affect the size and structure of government. Fortunately, for our purposes of presenting the relationship between these factors, we do not need to discuss causality. Afonso and Furceri (2010) provide an excellent overview and data about such causality.
 
10
Carmignani et al. (2009) point to several of the causal factors for governments changing their size and structure in response to changes in the macroeconomy. Some of these factors include politicians attempts to smooth out economic shocks, political pressures which force politicians and civil servants to respond to dislocations and so forth.
 
11
See Meznar and Johnson (2005) for some recent theorising about contingency theory in a government context. See Alford (2002) for recent tests of contingency theory in the public sector context.
 
12
In Michael and Popov (2011), we provide a detailed discussion of the way government structure -- as well as size -- changes in response to changes in its organisational environment. We omit this discussion here to keep the paper readably short.
 
13
The correlation coefficients for each pair of data are all below 0.40 and not significantly different than zero. For high-income countries, the correlation coefficient equals 0.34, the coefficient for medium-income countries equals 0.16 and for low-income countries equals 0.22.
 
14
A series of papers look at the extent to which government acts as a shock absorber (insulating the macroeconomy against adverse shocks) through counter-cyclical spending and employment practices (Furceri 2010).
 
15
In the paper that launched this branch of the literature, DiMaggio and Powell (1983) noticed that some organisations tend to change together, while others did not. Even recently, authors like Wooten and Hoffman (2008) have argued that academics still could not say with any certainty why some governments change their organisational structure and others do not.
 
16
Meltzer and Richard (1981) represent the first to describe the rational expectations approach to government organisation. Since then, authors have extended the framework to cover game theory and a range of other tools.
 
17
We assume that policymakers will want to adjust government expenditure pro-cyclically with changes in GDP -- and by exactly the same percentage amount (in other words, unity represents the optimal elasticity of government expenditure with respect to GDP). Much empirical evidence suggests that policymakers instead adjust government expenditure counter-cyclically. In this case, the largest “errors” in the figure would best explain the government’s adaptive response to changes in its organisational environment. We use the figure to discuss the method of determining the government’s responsiveness to changes in its organisational environment – namely whether certain kinds of governments adaptive reactively, contemporaneously or strategically – rather than use the figure to pass judgments or make definitive conclusions about fiscal policy in these countries. We put the word “error” in quotes to emphasize that we take a positive rather than normative view of the data in this paper – seeking to describe the data rather than determine a best or optimal response.
 
18
As described previously, we use the word “strategic” to describe changes in government expenditure occurring before changes in output. The lack of a response, or a counter-cyclical response may be more “strategic” (as commonly understood in the public administration literature). We only use the word to describe changes in government spending in time and do not attach a value-judgment nor argue that strategic responses are necessarily superiour to other types of responses.
 
19
Authors like Fernandez and Rainey (2006) assume managers always want to change their government departments’ organisational structure to respond to challenges (and they provide management guru-like advice on doing so).
 
20
Political economy offers the greatest promise for helping us understand the factors driving the data we present in this paper. However, with the exception of Besley and Burgess (2002), a lack of theorising and applied empirical work has limited our ability to use theory to discriminate between types of governments.
 
21
We draw attention to a very basic misunderstanding about strategy between economic theory and organisational theory. In economics, strategy describes the best response to the action of another sentient player who can predict (and react to the predictions of) other players. Strategy, in organizational theory, usually refers to predicting the future and emerging trends and patterns. We adopt the “future seeing” definition of organizational theory as we attempt to test theories in organizational theory rather than economics.
 
22
From a theoretical perspective, authors like Fernandez and Pitts (2007) might argue that delays in organisational adjustment stem from the need to deal with internal, as well as external, factors.
 
23
We put the word adjust in quotes because if OECD government policymakers chose organisational buffering as an optimal adaptation to a more complex and uncertain organisational environment, then the lack of a relationship in the data shown in the figure reflects the optimal (or at least equilibrium) organisational response.
 
24
The authors used a procedure known as Auto-Regressive Integrated Moving Average (or ARIMA) techniques. These techniques test the extent to which the value of a variable depends on previous levels of that variable. While a discussion of time series analysis extends beyond the scope of our paper, the reader should know that this test assesses whether past values of a variable explain that variable better than other variables.
 
25
The reader familiar with time series analysis will recognize this as a co-integration test – using a error-correction model. The authors tested three independent variables to find their impact on differenced government expenditure – differenced past government expenditure, differenced output and the lag value for differenced output. We chose the most important factor for each country based on the size of the corresponding coefficient. For example, if the regression coefficient for past changes in output exceeded the value (either positive or negative) of the other regression coefficients, we classified that country having reactive organisational adaptation.
 
26
Nsouli and co-authors (2002) describe why we might observe differences in government organisational responses even for similar governments and external environmental changes. Government leaders, acting rationally, may wish to time and sequence changes in the size and structure of government to long-run (inter-generational) objectives.
 
27
Interestingly, Gali (1994) finds that additional resources (in the form of higher tax revenues) may actually cause increased macroeconomic volatility. As such, governments may find themselves in a trade-off between pursuing a resource-based approach to sizing and a contingency-based one. As the government collects more taxes (resources), it may need to put those resources to work to deal with increased uncertainty in the macroeconomic environment!
 
28
These data show that universal admonitions to “put the resource-based view to work” do not apply equally to various governments (Bryson and co-authors, 2007).
 
29
Just like with our measure of adaptation to changes in government’s organisational environment, our measure of government’s “error” in responding to changes in resources only looks at the extent to which changes in government size contemporaneously adjusts to changes in revenues. Policymakers may wish to break the link between revenues and expenditure in any year in order to build up budget surpluses (in anticipation of future economic shocks), pay down previously acquired debts, or engage in fiscal policy to stimulate (or dis-stimulate) the macroeconomy. Given this wide range of organisational objectives, we only report the positive aspects of organisational adaptation -- ignoring the normative aspects (dealing with the desirability and/or optimality) of such changes.
 
30
Reverse causality (or government changing its macroeconomic environment rather than adapting to it) will always constrain what organisational theorists can say about government’s organisational adaptation to its environment. Yet, even observing objective correlations between organisational change and macroeconomic change in government’s organisational environment would already represent a great theoretical and empirical leap forward.
 
31
Indeed, Romer and Romer illustrate how the lack of a “mosaic view” of organisational theory can lead to wrong conclusions. They categorically assert that, “the results provide no support for the hypothesis that tax cuts restrain government spending; indeed, they suggest that tax cuts may actually increase spending” (1). We already showed that such a conclusion would not hold for many countries at many times.
 
32
One study hardly seems like the basis for a valid literature review. In our defence, we searched all the major search engines for papers dealing with “organizational environment” and variations of government, structure, public sector, strategy, “strategic adaptation” and so forth. The paucity of papers in this area reflects deeper epistemological problems around the definition of government structure and the organisational environment of the public sector – as well as the lack of data from which to evaluate various theories. We rather blithely gloss over all these serious considerations in our study in order to arrive at some empirically-derived conclusions (however tenuous they might be).
 
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Metadaten
Titel
The Failure of Theory to Predict the Way Public Sector Organisation Responds to its Organisational Environment and the Need for a Mosaic-View of Organisational Theory
verfasst von
Bryane Michael
Maja Popov
Publikationsdatum
25.11.2014
Verlag
Springer US
Erschienen in
Public Organization Review / Ausgabe 1/2016
Print ISSN: 1566-7170
Elektronische ISSN: 1573-7098
DOI
https://doi.org/10.1007/s11115-014-0296-5

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