Report Number:36930-GLB
EU-8Administrative Capacity in the New Member States:
The Limits of Innovation?
STUDY
September 2006
Poverty Reduction and Economic Management unit
Europe and Central Asia
Document of the World Bank
ABBREVIATIONS AND ACRONYMS
CAFCommon Assessment Framework
CISCommonwealth of Independent States
EIEuropean Integration
EUEuropean Union
HRMHuman Resources Management
ITInformation Technology
OECDOrganization for Economic Co-operation and Development
SIGMASupport for Improving Governance and Management in Central and Eastern Europe
UNDPUnited Nations Development Program
WBWorld Bank
Vice President / Shigeo KatsuCountry Director / Daniela Gressani
Sector Director / Cheryl W. Gray
Acting Sector Manager / Amitabha Mukherjee
Task Team Leader / Tony Verheijen
TABLE OF CONTENTS
Acknowledgements
Chapter 1.Introduction, Context and Approach
1.1 Context
1.2 Administrative Capacity Two Years after Accession: Still Strong On Core EU Issues, But Weak on Overall Capacity
1.2.1 Two Sides of the Coin: Strong on Core EU Issues, Weak on Areas Requiring Broad Capacity
1.2.2 Administrative Capacity: The Difference between the Pre and Post Accession Context
Chapter 2.Reviewing Main Trends: Isolated Innovations, Weakening Coordination, Continued Problems With Defining Incentives And The Return Of Politicizations
2.1 Public Management Innovations Continue To Be Rare and Relatively Isolated
2.2 Structural Flaws Have Re-Appeared
2.2.1 Coordination Systems Are Weakening
2.2.2 The Return of Politicization
2.2.3 Incentive Systems, Still Looking For a Balance
Chapter 3.Benchmarking Innovative Capacity
3.1 Identifying benchmarks
3.2 Defining the Sample
3.3 Performance Management and Strategic Planning
3.3.1 Performance Management Approaches and Their Application
3.3.2 Performance Management Practices In the EU-8, Partial, Incremental, But With Some Promise
3.3.3 Strategic Planning
3.3.4 Strategic Planning Practices: How to Move beyond the Accession Process?
3.4 Policy Coordination
3.4.1 Reviewing Coordination Practices: A Dangerous Sub-Optimum
3.5 HRM Systems
3.5.1 HRM Systems, In Overall Decline
3.5.2 Conclusions on HRM
3.6 E-Governance Applications
3.6.1 Contrasting Poland and Estonia: Phases in e-Governance Capability
3.6.2 Explaining Variation in Progress: The Four Factors
Chapter 4.Replicability And How To Design A Successful Reform Agenda: A Review Of Alternatives
4.1 Innovations and factors in Replicability
4.1.1 Replicability of Systemic Reforms
4.1.2 Replicability of selected Public Management Tools and Agency Specific Reforms
Chapter 5.Conclusions
References
List of Tables
Table 11:Transposition – EU-25 Member States
Table 12: Fiscal deficit levels 1995-2006
List of Boxes
Box 21: Performance management benchmarks
Box 22: Strategic planning benchmarks
Box 23: The main elements of the HRM baseline assessment
Box 41: Conclusions and Recommendations: Summary
List of Figures
Figure 11: Absorption of EU structural funds, September 2005
Figure 31: CAF rating scale
Figure 32: Chart 1 - Performance management benchmarked against the EU average
Figure 33: Chart 2 - Strategic planning benchmarked against the EU average
Figure 34: The policy co-ordination scale
Figure 35: Chart 3 - Overall coordination levels
Figure 36: Chart 4 - EI coordination
Figure 37: Chart 5 - Civil Service Legislation
Figure 38: Chart 6 - HRM Systems
Figure 39: Chart 7 - Politicization
Figure 310: Chart 8 - Incentive Systems
Figure 311: Analytical framework for e-Governance applications
Acknowledgements
This study is based on analytical work undertaken between January and September 2006.
The team that prepared the report wishes to thank the Governments of Estonia, Latvia, Lithuania, Poland and Slovakia for the constructive discussions undertaken during the various missions to complete the study.
Tony Verheijen is the main author of this report. Background papers on individual countries are available separately and were prepared by Robert Brown, Colin Combe, Elge Rimkute, Witold Satorius, Ugis Sics, David Silbergh, Katarina Staronova and Ivar Tallo. The study benefited from insightful and constructive comments from the peer reviewers, Simon James and Barbara Nunberg.
This report was prepared under the general guidance and advice of Amibtabha Mukherjee, Daniela Gressani, Bernard Funck and Deborah Wetzel. The report also benefited from valuable suggestions and inputs received at different stages of preparation from Thomas Laursen, Anton Marcincin, Piet Hein van Heesewijk and Svetlana Proskurovska.Processing and editing assistance from Sarah Mbayo is gratefully acknowledged. Helpful logistical assistance was also received from Marta Michalska and Elena Markova.
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Chapter 1.Introduction, Context and Approach
1.1 Context
1.1More than two years after the enlargement of the European Union, administrative capacity remains an issue of concern for the EU-8. On issues that are directly linked to the management of EU affairs, most new Member States continue to perform welllike they did during the accession process. However, indications that all is not well in their administrative systems overall continue to be present. These are expressed in a diverse set of indicators, ranging from overall fiscal performance, where several states do not meet Eurozone entry criteria, through low EU fund absorption ratios, to signs of unease in politico-administrative relations as reflected in inadequate national positions on key European Integration (EI) policy issues.
1.2This study reviews the direction ofthe administrative development in the first two years of EU membership in the EU-8, and includes both a review of general trends in administrative development as well as a benchmarking exercise on a sample of states on selected criteria that illustrate capacity for public management innovations. The review was carried out in the context of the preparation by the new Member States of their strategic development plans for the use of EU structural funds for the 2007-2013 planning period. The implementation of these plans will constitute both a serious test of the capability of the new Member States to effectively function in the EU and, if successful, could provide a significant further impetus for economic development in the region. However, if states do not succeed in planning effectively and using structural funds, this may create a (further) backlash against EU membership and negatively impact growth patterns.
1.3Concerns over the ability of the administrative systems of the new Member States to cope with the demands posed by planning and implementing long term socio-economic development plans have led to the introduction by the European Commission of a new facility in the structural funds to strengthen administrative capacity, thus providing states with additional incentives to invest in the professionalization and modernization of public management systems.
1.2 Administrative Capacity Two Years after Accession: Still Strong On Core EU Issues, But Weak on Overall Capacity
1.4The experience of the new Member States in the EU over the last two years has been mixed. Whereas most states have proven to be able to cope with the workload generated by core EU issues, such as transposition of legislation, their ability to effectively plan and use structural funds and to address broader issues of competitiveness remains in some doubt. Furthermore, a number of states have shown serious weaknesses in their performance on broader aspects of public management, for example, the growing fiscal deficit levels, while others have found it hard to cope with the intricacies of EU decision making.
1.2.1 Two Sides of the Coin: Strong on Core EU Issues, Weak on Areas Requiring Broad Capacity
1.5In some core aspects of participation in the EU, such as transposition ratios of EU directives, the new member states have done (unexpectedly) well, with Lithuania ranked as the best performer among all Member States in the Commission League Tables published in February 2006.
Table 11:Transposition – EU-25 Member States
EU-25 Member State transposition deficit, as at 1/12/2005 – 1635 directives
MemberState / LT / DK / HU / FI / PL / SE / CY / LV / MT / SI / NL / DE / EE / SK / UK / AT / ES / FR / BE / IE / CZ / IT / PT / EL / LUTransposition Deficit (percent) / 0.4 / 0.7 / 0.7 / 0.8 / 0.9 / 0.9 / 1.1 / 1.1 / 1.2 / 1.2 / 1.2 / 1.3 / 1.3 / 1.4 / 1.4 / 1.5 / 1.5 / 1.7 / 1.8 / 1.8 / 2.5 / 3.1 / 3.1 / 3.7 / 4.4
Number of Directives / 6 / 11 / 12 / 13 / 14 / 14 / 18 / 18 / 19 / 19 / 19 / 22 / 22 / 23 / 23 / 24 / 25 / 28 / 29 / 30 / 41 / 50 / 50 / 60 / 72
Infringement cases against EU-15 Member States, as at 1 October 2005
MemberState / DK / FI / LU / SE / NL / IE / PT / AT / UK / BE / EL / DE / FR / ES / ITNumber of open infringement cases / 31 / 36 / 36 / 41 / 44 / 51 / 53 / 59 / 66 / 66 / 99 / 101 / 113 / 115 / 157
Infringement cases against EU-10 Member States, as at 1 October 2005
MemberState / LT / LV / SI / EE / HU / SK / CY / CZ / MT / PLNumber of open infringement cases / 4 / 7 / 7 / 8 / 10 / 10 / 11 / 14 / 14 / 18
Source: European Commission: Internal Market Scoreboard 14bis
1.6This, however, reflects an earlier established pattern of administrative development. On issues related directly to the EU management affairsthe EU-8 have performed well, and developed capacities at par or even exceeding those in the old Member States, in particular duringthe high pressure build-up-period to membership. However, whereas the “islands of excellence” in EuropeanIntegration Management have often been praised, few amongst the new Member States have managed to expand best practice approaches used in the preparation for EU membership to theirPublic Administration Systems at large. This continues to generate concerns about the overall level of administrative development in these states. Weak capacities have started to impact the broader ability of states to effectively manage public expenditure, including EU funds, to provide a competitive investment climate and to frame macro-economic policies that are consistent with the objective to join the Eurozone in the next five years.
1.7Overall,economic and fiscal performance, when measured in levels of economic growth, shows that the EU-8 continues to outpace the “old” Member States, which would appear to be an indication that the EU-8 remains economically highly competitive. However, serious concerns remain on core aspects of economic management. Fiscal discipline remains weak in many of the new Member States, with Hungary the main outlier with a fiscal deficit that couldexceed 10 percent in 2006, and only five of the new Member States meeting the targets required for joining the Eurozone.
Table 12: Fiscal deficit levels 1995-2006
Source: Eurostat
1.8Initial data on absorption capacity of EU funds provide more explicit illustrations of problems with the administrative capacity. Fund absorption rates have remained well below desired levels. Poland, Hungary and the CzechRepublic all stand out as problem cases, while Latvia is the only state with a satisfactory performance.
1.9Finally, some areas of negative performance of the new Member States in the EU context includes a series of “faux pas” by Poland, alienating other Member States (Financial Times, 1 May 2006) which is surprising, considering the good reputation of Poland in handling EU affairs at administrative level, and would point to a breakdown in communication between politicians and civil servants.
Figure 11:Absorption of EU structural funds, September 2005
In percent for appropriations of 2004-06
* Advance payments to new member states in the amount of 10 percent of total allocations in 2004 and6 percent in 2005.
** Verified public expenditure – expenditure of the final beneficiaries verified by the managing or intermediary authority (excluding Estonia).
Source: World Bank QER EU8, February 2006
1.2.2 Administrative Capacity: The Difference between the Pre and Post Accession Context
1.10As noted above, the big test of the administrative capacity in the EU-8 will come with the preparation of strategic plans for the use of the EU Structural Funds in 2007-2013. The ability of Member States to effectively prepare and implement development plans will determine the extent to which they will manage to reap the direct benefits of EU membership. The EU coordination machinery in many of the new Member States has often been praised for its effectiveness (Dimitrova and Maniokas, 2005). However,preparing and implementing strategic plans for the Structural Funds will pose far greater questions of internal administrative capacity than managing the EU negotiation process or transposing EU legislation. “Islands of Excellence” in this case are no longer sufficient to carry the day.
1.11EU accession was one of the main factors for lifting the Public Administration Systems of the EU-8 out of the doldrums in the late 1990s, as the EU set formal criteria (“SIGMA baselines”) for accession. Whereas, as a result of this, the first years of the current decade saw a flurry of reform initiatives, this initself was insufficient to rebuild the Administrative Systems that had been destroyed during the previous regime, and largely left to wither away during the first post-transition decade. The current process of strategic planning for structural funds, and their subsequent implementation, should provide a second EU-defined impetus for administrative reform, which will determine whether some of the foundations for reform laid in the late 1990s will have a lasting impact. At the time of accession, many issues remained unresolved; civil service systems were weak, or in some instances barely established (e.g. in the CzechRepublic, Slovakia and Slovenia). Policy management systems, where reformed, were new and vulnerable and other innovations, such as the Estonian e-governance system, still being tested.
1.12A second wave of reform, driven by participation in the EU, was expected to solidify initiated reforms and address issues that until that time had remained unaddressed, such as the implementation of advanced Human Resource Management Systems. These reforms are broadly seen as essential to the ability of the EU-8 to gain the benefits of EU membership, in particular the effective use of EU funds, run reliable Budget Management Systems and retain their attractiveness as locations for foreign investment as labor cost gradually catch up with the “old” Member States.
1.13However, there has been little evidence of overall progress on administrative reform issues in the new Member States, though progress in some states, particularly the Baltics,has been made. As an illustration of the general concern about lagging administrative capacity, the EU has opened a window in the structural funds to co-finance programs to strengthen theiradministrative capacity, which will be effective under the 2007-2013 allocation. A discussion on Administrative Reform priorities is timely as States prepare their strategic plans for the new financial period.
Chapter 2.Reviewing Main Trends: Isolated Innovations, Weakening Coordination, Continued Problems With Defining Incentives And The Return Of Politicizations
2.1An overall review of administrative development in the new Member States yields a mixture of limited success stories in innovation, combined with an overall backslide in core issues of administrative reform. Success has been achieved mainly in the introduction of strategic planning and performance managementsystems, particularly in Lithuania and Latvia,and through innovations in service delivery through the use of e-Governance tools, mainlyin Estonia. Some agency specific reforms, in particular in Slovakia, also stand out as best practice. Besides these innovations, the trend in the development of the Civil Service and the Public Administration systems is not positive on three core issues;coordination, politico-administrative relations and incentive systems.
2.1 Public Management Innovations Continue To Be Rare and Relatively Isolated
2.2The review of administrative development in the EU-8 reveals some interesting innovations, especially on performance management and e-Government.
Performance management: A basis for long term improvements?
2.3The strategic planning initiatives in Lithuania (launched in 1999) and Latvia (launched in 2000) were initially defined as a response to serious fiscal problems and as a way to meet requirements for improved management of the EU accession process. Five years on, strategic planning has become the anchor for a broader move towards the introduction of the performance management systems in both states. Lithuania has opted for a top-down approach, led by the State Chancellery in close cooperation with the Ministry of Finance and rolled out throughout the Central State Administration.Latvia has used a bottom-up approach, whereby ministries and agencies are stimulated to use policy planning tools designed by the State Chancellery but on a voluntary basis.
2.4The review of the two cases shows that the top-down approach of Lithuanian has led to faster results, as there has been a strong push for ministries to adapt to the new system, which has led to a relatively quick roll-out of the system (World Bank, 2006b). This is also reflected in improved budget management organized around strategic planning principles, led by the Ministry of Finance.The Latvian strategic planning systemhas developed at a slower pace, but is also expected to cover the whole Central State Administration by the end of 2006. These systems will be instrumental to both countries as they proceed to define their 2007-2013 structural fund priorities and are likely to give them a major advantage over the other new Member States.
2.5The next step in the development of the Performance Management systems is to bring Performance Criteria to the level of individual officials, and link these to career advancement and possibly pay levels. This will be a highly difficult step, as HRM systems remain weak in both states (see the section on HRM coordination) and the outdated incentive systems in place are ill-suited to the requirements of performance management. However, Latvia has already initiated a wage systemreform process that is likely to create a system that fits better within a performance driven Public Management system, thus making a further step towards completing a full-fledged performance management system. One important factor in making this final step of the development of performance management system is manageability, which is in this case means setting simple and realistic performance targets at institutional level, so that individual performance criteria can be distilled from this relatively easily. Creating systems that are too complex in performance target setting is likely to enhance resistance to innovation which will in turn stifle their successful introduction.
Service delivery: Using E-Governance tools, the Estonian exception
2.6The use of e-Governance tools in various aspects of public service delivery is a good option for states that want to gain advantage in competitiveness, as the use ofe-governance tools provides faster and more reliable services for citizens and businesses and enhances the level of transparency. Finland is an outstanding example among the old Member States that has used technology to outperform other Member States that had traditionally more advanced systems of governance. In view of its geographical and cultural proximity to Finland, it is not surprising that Estonia has been the front runner in applying e-governance approaches.[1]Significant investment in IT infrastructure, combined with the development of training facilities to enhance the necessary skills among public officials, have created a state of the art e-government system that includes diverse services,such ase-voting, tax administration, as well as key business services. Whereas the Estonian comprehensive approach is difficult to replicate, a more selective approachwould be feasible across the EU-8, focusing on key business services and of corruption-sensitive aspects of service delivery, but has so far not found wide application.