The action environment

The first dimension, that is, the action environment dimension, refers to the social, political, and economic conditions of a country in which public sector institutions perform their activities. Hilderbrand and Grindle argue that good political and social stability with sound economic conditions facilitate the ability of government to perform its functions. On the other hand, a high level of political instability and social conflict makes it difficult for government machinery to function (Hilderbrand and Grindle 1997:37). In line with Hilderbrand and Grindle's argument, but more specifically, Rainey (1991:Chapter 2) identifies the environmental factors that may impact on the capacity of public organisations as the general science and technological stage of a country, the government system, the level of prosperity and the characteristics of population, as well as the predominant values, attitudes, and belief of the society. The more conducive these factors in a country are, the more capable are its public organisations to perform their functions.

Based on their case studies, Hilderbrand and Grindle (1997:39) indicate that factors within the action environment are much more important as constraints in some countries than in others. For example, experience in the Central African Republic left little doubt that until basic conditions of economic development, political commitment, and social stability are put in place, little

can be done along other dimensions that would contribute to improving public sector performance. In Morocco, by contrast, capacity building initiatives would not need to pay much attention to improving a generally positive or at least benign action environment. In other cases, while the action environment was far from ideal, interventions at other levels could do much to redress the capacity gaps that were identified. For example, despite having a less favourable economic environment because of considerably lower per capita income, Sri Lanka was able impressively to improve the capacity of its public administration by directing its limited resources to support human development in all levels (Hilderbrand and Grindle 1994:29).

Figure 2.2 A five-dimensional framework of institutional capacity

Organisation Goals Structure of work Incentive system Management/leadership Physical resource Formal & informal communication Behavioral norms Technical assistance

Task Network

Communications and interactions among Primary Organizations Secondary Organizations Support Organizations ORG3 ORG1 ORG5 ORG4 ORG2 Human Resources Training Recruitment Utilization Retention Concurrent policies

Public service rules and regulations Budgetary support

Role of the state Management practices Formal & informal power relationships

Public Sector Institutional Context

Economic Factors

Growth Labor market International economic relationships & conditions Private sector Development Political Factors Leadership support Mobilization of civic society Stability Legitimacy Political institutions Social Factors

Overall human resource development Social conflict Class structures Organization of civic society Action Environment Performance Output Effectiveness Efficiency Sustainability Quality

Source: Hilderbrand, M.E. and Grindle, M.S., 1997. ‘Building sustainable capacity in the public sector: what can be done?’ in M.S. Grindle (ed.),

A number of other studies have shown how factors within this action environment dimension have affected the capacity of the public sector in different countries (see, for example, Polidano 2000; Osei-Hwedie 1998; Migdal 1988). For example, Migdal (1988) has comprehensively analysed how ethnic fragmentation in many developing countries has created social and political instability that has disabled state institutions by weakening their implementation capacity. Whereas in economic terms, Polidano (2000:811) asserts that a severe economic crisis can reduce public sector capacity in many countries in two ways. Firstly, an economic downturn reduces capacity because governments have to make sharp cutbacks to the public sector. Secondly, economic crisis weakens the capacity of public institutions because the purchasing power of the-already-low-paid public officials is reduced which compels them to seek alternative means of earning their living.

Indonesia is probably one of the best examples of how social, political, and economic conditions have weakened the capacity of public institutions. Before the Asian economic crisis in 1997, together with Hong Kong, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand, the World Bank (1993:1-3) included Indonesia as one of the miracle countries in East Asia because of its high economic performance in terms of average annual growth rate and a steady decrease of inequality (see also Schwarz 1994:57). In terms of poverty

alleviation, in 1990 the World Bank reported that for the last twenty years Indonesia had the highest annual reduction in the incidence of poverty amongst all countries studied (1990:45). In 1971, 68 million Indonesian people were considered as poor. In 1990, even with a 50 percent increase in population, the number of people considered as poor had fallen to 18 million (Naisbitt 1997:181). According to Hill (1994a:55), one of the reasons for this impressive achievement was the existence of a stable economic and political environment, although the government sometimes had to take tough and unpopular decisions.

However, the capacity of Indonesian public institutions to deliver public services severely deteriorated following the Asian economic crisis, which in Indonesia was followed by social disorder, political restructuring, and the outbreak of debilitating communal conflicts across the country. The quality and quantity of government-provided social services, such as education and health, declined because of budget reductions. For example, public spending on health during the crisis was dramatically cut, resulting in declining standards of care (BPS, Bappenas and UNDP 2001:39). The availability of most antibiotics and contraceptives declined at public health facilities and public health centres seemed to be closed more frequently than they were open (Knowles et al. 1999:29-30). In terms of poverty alleviation, the results achieved before the Asian financial crisis were reversed. For example, those living in poverty rose to around 24 per cent of the population in 1999 from

just 12 per cent in 1996 (UNDP 2001:2-4).