Major Risks and Public Management

Romain Laufer, Professor of Marketing - February 15th, 2010
snow explosion - major risks and public management

Public management originated during the early 1970s, in the context of acrisis in Western institutions and uncertainties about the boundaries between“private” and “public.” Today, the development of major risks and uncertaintiesof all kinds makes public management indispensable for every company.Management has become a “political” science. 

Romain Laufer ©HEC Paris

Romain Laufer is Professor Emeritus who joined the Marketing Department of HEC Paris in 1968. He is a member of the editorial committee of the journal Politiques et Management (...)

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Public or private? To see this distinction clearly, we can refer to the least contestable definition in democratic societies such as ours—the law. In France, the history of administrative law makes it possible to define unequivocal, historic boundaries between public and private domains. Three periods are commonly distinguished. The period from1800 to 1880-1900marked the reign of public power, the “Etat Gendarme” (a state with duties limited to the police, national defense, and the courts). From 1880-1900 to 1945-1969 was dominated by the criterion of public service—the “Welfare State.” The period since 1945-1960 marks a crisis in criteria, corresponding to a crisis in the nation state, and the growing difficulty of legitimating public action. 


THE BLOCKAGE OF “VILLE NOUVELLE EST”

Consider the planning controversy surrounding the “Ville nouvelle Est” (New East City), by its essence a matter of the common good. In 1966, the government planned to create a new city to the east of Lille. This vast project was declared a public utility— a claim contested by a residents’ association on grounds that it would lead to the demolition and expropriation of more than a hundred dwellings. The Conseil d’Etat (Administrative State Council)  ruled in their favor, declaring that the negative impact of a public utility operation—on private property, financial costs, and possible disturbances to the social order—must not exceed its benefits. This decision blurred the boundary between public and private, setting forth a jurisprudential precedent: the theory of cost-benefit balancing, which imported managerial logic into the legal sphere. Around the same time, in a similar case, the manifest error of evaluation theory (manifest for public opinion) allowed judges to do what in principle they could not—make judgments based on discretion, and not only on law. This reasoning leads to the incursion of marketing logic into public policy. 


A PAROXYSM OF CONFUSION

Today, examples abound of managerial situations where public and private logics are mixed. Companies make institutional communication a strategic priority, and carefully maintain their reputation by proclaiming their good governance and responsible practices. They “call on the public as a witness,” each day bringing forth a new crop of public management actions. The most illustrative example is the recent conflict between EADS and Boeing over competition rules for tender offers to manufacture American air refuelling tanker planes. As for the public sector… 


THE RELEVANCE OF “NEW PUBLIC MANAGEMENT”

Though paradox reigns during uncertain times, questions regarding transformations in the management of public organizations need to be examined. An important new development in this domain came with “New Public Management,” the reform movement in the public sector initiated in OECD countries in the 1980s. “New Public Management” embodies public institutions’ crisis of legitimacy in a radical fashion—a fact which explains its success. As Laurence Lynn says: “‘New Public Management’ will have important consequences insofar as it is considered a paradigm for questions rather than answers.”1 


THE RETURN OF PUBLIC LOGICS

The evolution of management since the Thatcher/ Reagan revolution of the 1980s was dominated by the victory of private logics over public ones, deemed inefficient. But the exclusion of uncertainty corresponded to a lack of realism, demonstrated by the growing space occupied by the notion of major social risk. These risks reaffirm the role of states, as illustrated by episodes such as Hurricane Katrina, the H1N1 virus, and of course, the financial crisis. 


TO LEAD IS TO LEGITIMATE

Edmund Phelps, Nobel Prize-winning economist and director of the Center for Capitalism and Society at Columbia University, affirms² that the reason why major stockholders continued dangerously to “over-leverage”, why legislators failed to demand a reinforcement of financial market regulation, and why those taking out insurance against the risk of mortgage-related defaults failed to perceive the insolvency of the insurers themselves, is one and the same: they had all failed to take seriously the notion of uncertainty (in the sense used by the economist Frank Knight³). Public management teaches us that managing in general implies the careful study of “uncertainty” when it concerns the very foundations of our social institutions. From now on, to lead is to legitimate.



Based on an interview with Romain Laufer, and on his article “Où est passé le management public? Incertitude, institutions et risques majeurs” (What happened to public management? Uncertainty, institutions, and major risks; in Politiques et Management Public , Vol. 26, No. 3, November 2008).



1. See “The New Public Management: How to Transform a Theme into a Legacy” by Laurence E. Lynn (Public Administration Review , May-June 1998, Vol. 58, No. 3, p. 231-236) and “What is Measured is what Matters: Targets and Gaming in the English Health Care System” by Gwyn Bevan and Christopher Hood (Public Administration , September 2006, Vol. 84, No. 3, p. 517-538).

2. Financial Times, 15 April 2009.

3. See Risk, Uncertainty, Profit (University of Chicago Press, 1921, 1971). 



DEFINITIONS

Management: a particular administrative language (an administrative language makes it possible to resolve conflicts within organizations). Management derives its origins from an administrative language developed throughout the history of private enterprise.

Public: there are three definitions of "public":

1. Institutions: that which has a public legal status;

2. Epistemological: that which stands to affect all members of a given society; and

3. Pragmatic: that which is not hidden, which occurs in public view.   

PRACTICAL APPLICATION
PRACTICAL APPLICATION

Whatever its size, sector, and economic situation, any company today must develop two levels of strategy. On one level is lobbying, necessary to shape relevant norms and seek support from and influence over “public opinion”; and on the other level, procedures to adapt to prevailing norms. Major multinational corporations incorporated this insight into their strategies decades ago, but the rule applies to everyone. Small cheese producers, for example, would gain by an awareness of the major, public risks to their profession. Joining a professional union to have a voice in Strasbourg and Brussels would be a wise move.