Recession Leaves No Time to Wait for More Efficient Governance

The state must become accountable for what it does, and if it does poorly, then people in that sector should feel insecure about their jobs. If state institutions do not have answers to questions about their own productivity, then they cannot credibly participate in discussions about necessary changes in any other segment of society.

Written by: Slavica Singer *

Globalization has created global markets but also a global recession. Therefore, it is only a matter of how quickly the recession spreads and to what extent individual economies are ready to react, rather than whether the recession will bypass anyone. The recession is like a forest fire – everyone will suffer, both the weak and the strong. If we use a forest fire as a metaphor for recession, we can expand it with some knowledge that every good forester and firefighter possesses – good forest design (economic policy) and regular forest cleaning (removing pockets of unproductivity) are prerequisites for its good growth and preventing the spread of fire (recession) or mitigating the consequences of fire (recession).

It took us time to recognize the crisis – when the whole world was talking about it in September 2008, we were comforted by government members with messages that the recession was not our problem. Then suddenly, from December, it became our problem too; everyone is talking about the crisis, about layoffs in shipbuilding, the wood industry, trade… This strategic shortsightedness is a result of strategic illiteracy at the level of economic policy makers and being entrenched in mandate periods – economic development requires a longer-term vision and consistency in economic policies.

And a handful of signals has been warning us for years that sustainable economic growth cannot be achieved without strengthening the entrepreneurial capacity of the country. Signals have come from Croatia’s positioning in global competitiveness, entrepreneurship, quality of regulatory framework, corruption, but also domestic warnings, especially from the Croatian National Bank (HNB). Even if there had been no such warnings, it was enough to listen to the same stories of despair from entrepreneurs about unsuccessful battles with administrative barriers or about the lack of certain professions in the labor market and to wonder why such situations become our economic evergreens. Is it possible that we do not know how to solve them? Due to such evergreens, trust in institutions has been lost, from institutions that carry economic policy to institutions that protect the right to equal opportunities in the economic game.

Since 2002, when we became part of most of the mentioned international studies, some limitations of competitiveness and entrepreneurial activity have been constantly repeating: strong administrative barriers, inconsistent government policies, lack of entrepreneurial education, weak innovative capacity of the business sector, low productivity, corruption. The frequent attacks by government officials on the methodologies of those international studies in which Croatia was not well ranked showed a lack of leadership capacity to introduce necessary changes. If we have been waiting until now to create a good design for the economy (vision, strategies, policies) and have not done much to eliminate pockets of unproductivity, the recession leaves no one time to wait anymore.

Where to start? Why not with public administration? The state is a large consumer of taxpayers’ money, and its services are also a significant source of costs for the economy. Therefore, it is not enough to state that the state is not a good manager – it simply must become accountable for what it does, and if it does poorly, then people in that sector should feel insecure about their jobs and positions just like in the business sector. If state institutions do not have answers to questions about their own productivity, then they are not credible to participate in discussions about necessary changes in any other segment of society.

The credibility of public administration, and thus trust in institutions, is achieved through the way HOW public administration responds to the question of its own effectiveness (are they doing the RIGHT things, i.e., do they contribute to achieving goals important for the quality of life of all citizens of Croatia) and efficiency (the way they do those right things). In this area, there are numerous examples of good practice, especially in countries that take great care of taxpayers’ money. The World Bank presents the example of the Netherlands, which has been conducting a thorough analysis of costs and benefits for every legislative proposal before it enters parliamentary procedure for several years, thus saving almost 1.5 billion euros in costs to the economy in just two years.

What the largest Dutch environmental protection agency DCMR Milieudienst Rijnmond from Rotterdam is doing today is an excellent example of how a public institution can entrepreneurially and socially responsibly use taxpayers’ money and thus earn the trust of its clients. DCMR is a joint agency of the city of Rotterdam and 15 surrounding cities in the highly industrialized Rijnmond region. The agency has 550 employees who issue all types of work permits for almost 22,000 companies in the region and conduct more than 9,000 different inspections annually, proposing policies and measures to the founding cities to improve environmental protection. This activity of DCMR costs about 50 million euros a year, which is mainly provided by the founding cities of the agency. But how?

The agency was established back in 1972, and until a few years ago, the agency’s work was financed depending on the number of working hours – the excuse of unforeseen situations was (over)often used as an explanation for why they spent more time than planned on certain projects. Since 2004, they have been making annual plans for the projects they will work on – with an estimate of the hours needed to implement the project, which is the basis for contracting with cities for financing – if they complete the project in fewer hours, that is profit for them; if not, then it is a loss for the agency.

The signals of the crisis (recession) were recognized as early as the beginning of 2008, and preparations began on how to respond to the expected situation, i.e., to reduce the risk of possible layoffs. The basic idea was to find solutions that would be important to their clients even when they are looking for ways to reduce costs. Therefore, the DCMR Management came up with proposals on how to do existing services/projects for their founders cheaper, i.e., how to better use the available taxpayers’ money in 2009:

1. Increase productive working hours by 40 per employee (from 1,850 working hours per year per person, until now 1,330 hours have been productively used, and the rest were hours spent in meetings, preparations, self-education, sick leave…). In 2009, each employee will be obliged to work 1,370 productive hours – this does not mean they will work 40 hours more, but there will be fewer unproductive hours. Those additional 40 productive hours per person consist of:
– 20 hours gained by having fewer meetings, especially those informative ones for which the intranet will be used
– 8 hours gained by reducing sick leave from the current average of 5.5% to 4.5% of annual hours (increasing the verification of the causes of sick leave – e.g., an occupational health specialist suggests in a conversation with the employee what kind of chair they need at work, what keyboard they use, mouse usage, etc.)
– 8 hours gained by reducing two days intended for socializing and team building to one day
– 4 hours gained by abolishing shorter working hours before St. Nicholas and Christmas, etc.

2. Reducing general costs (from the current 30% to 25%, through a significant reduction in the number of people who are 100% general costs – only secretaries, administrative staff, computer maintenance, human resources, all others must justify their work through concrete projects).

3. Less subsidies for using restaurants or complete abolition of subsidies (they came to this conclusion by analyzing that only 25% of employees use the restaurant, which is unfair to others, as they enjoy a 30% subsidy on the price of food that others do not use), which amounts to a total of 150,000 euros a year. These three solutions have been incorporated into the operation of DCMR since the beginning of 2009, as they worked on them in 2008 and thus prepared their responses to the recession. If they have more productive hours, they will be able to provide more services, which means that for the same taxpayers’ money, which they receive through their founders – the cities, they will do more than before. In this way, they hope that with cheaper services for their clients and increased productivity, they will be able to preserve the number of employees.

But that is not all – they are conducting a very detailed analysis of the necessary working hours for providing each service/project and will complete it by April 2009, expecting to increase productivity by an additional five percent, which will be the basis for contracts with the founding cities for 2010.

So, this is how the Dutch do it – it would be good to hear from agencies and ministries of our Government what their response to the recession is, how they plan to do more with the existing taxpayers’ money and preserve their jobs – for example, how the HAMAG agency for small business plans to do this, which is currently in the process of restructuring and taking over some activities that were previously part of the Ministry of Economy, Labor, and Entrepreneurship.

In this way, they offered a good example of how to think about WHAT they do, HOW they do it with the desire to gain the TRUST of people in what and how they do it. This would also strengthen the Government’s credibility and authenticity in seeking solutions regarding the recession, as increasing productivity is essentially a battle for jobs not only in the business sector but also in public administration.

We lost the year 2008, but every additional day in unproductive waiting for problems to disappear on their own costs more and more lost jobs. If civil servants can do it there in Rotterdam, why can’t we do it too? And it is no longer a question of who will initiate this process – employers, unions, the Government, individuals, let’s just start working on it.

* Author is a member of the National Council for Competitiveness and president of the Center for Small Business Development Policy and Entrepreneurship CEPOR.