Network governance in public infrastructure services

Networks have been offered as an alternative to the traditional hierarchical and market forms of governance for implementing polices and providing services (Kenis & Provan 2009; Provan et al. 2007; Hudson 2004). However, the common themes of

interdependence, numerous organisations working together and goal congruence among network definitions indicate that public services have been delivered under different governance network structures. These definitions effectively describe hierarchies and markets as forms of networks governance structure. The change from one structure to another is brought about by the introduction of a new policy. With a new policy, a network goes into transition which can result to functional changes such as new actors, new resources and new network goal (Li et al. 2017).

Prior to PPP, public services were governed by hierarchical networks that were comprised of purely public actors. The concept of network emerged in the post-war period where the increase in scope, sectoralisation, decentralisation and fragmentation in public services after the war has expanded the number of public actors involved in public service delivery (Kenis & Schneider 1991; Adam & Kriesi 2007). Market-like networks replaced hierarchical networks with the adoption of the PPP policy in the 1990s to early 2000 when governments deemed that state-owned infrastructure services were no longer effective in serving the public need. PPP envisioned a governance network that is purely private in nature where market forces are expected to improve public services. In a market-like network, actors interact at arms-length, there is perfect competition and the market produces the best outcomes for the consumer (Barnekov & Raffel 1990; Brubaker 2003). In reality, however, PPP has created a network governance structure of public and non-public actors that is relational in nature. Figure 2.1 shows the different governing networks in the pre-PPP and the PPP era.

Figure 2.1 Governance structures in public service delivery

Hierarchy Market Relational network

Privatisation era Pre-privatisation era

2.4.3.1 Hierarchical networks

Public services were governed by hierarchical networks, which were vertically organised hierarchical structures composed of a number of public actors (Adam & Kriesi 2007; Osborne 2010a). This structure is similar to ‘closed village communities’ held together by mutual trust, confidence, common calculations and specific ‘climates’ (Kenis & Schneider 1991, p.29). In a hierarchical structure, the government is assumed to be a social welfare- maximising government. Public interest is politically defined and expressed in law and public services are performed by a number of public organisations. The government is the direct provider of public services through a centralised, top-down control bureaucracy (Denhardt & Denhardt 2000, pp.551–552). The government itself carries out the orders within its hierarchy. Public managers implement the policies determined by those at the top of the hierarchy, who are usually elected politicians and appointed officials (Hjern & Porter 1981, p.218). Administrators exercise limited discretion and are accountable to elected and appointed political leaders. Politicians, in turn, are accountable to the voters. Politicians are expected to formulate and implement policies that best represent the interests of the citizenry. In return, voters reward them by keeping them in office.

As history has shown, however, governments have failed as providers of public services. Contrary to the assumption of social welfare-maximising government, politicians and bureaucrats behaved as rational players who maximised their own welfare and used government offices to advance their own interests (Shirley & Walsh 2000, p.28). With the

gamut of issues that the government has to address, an astute politician will prioritise the narration of success stories to voters. SOEs are susceptible to political intervention due to lack of transparency. SOEs are usually attached to a department or ministry and its managers are directly appointed by the minister or chief executive, which can be used by politicians as success stories. Votes do not necessarily translate to a demand for more efficient public services as the average voter may not be or not made aware of the performance of SOEs (Shirley & Walsh 2000, p.24).

2.4.3.2 Market-like networks

Following the oil crisis in the early 1970s, there was a growing disillusionment with government performance by the late 1970s and 1980s in the developed world (Kickert et al. 1997, p.1). The bureaucratic, hierarchical and control-driven mode of the public administration tradition had been criticised for its excessive rules, rigid budgeting and personnel systems that ignores citizens’ needs and shuns innovation (Denhardt & Denhardt 2000, p.551). The failure of the hierarchical governance structure to efficiently and

effectively deliver public services paved the way for the birth of New Public Management (NPM) in the early 1990s. The NPM approach to running public service organisations was framed from neoclassical economics, particularly the public choice theory. NPM

encouraged public managers ‘to steer rather than row,’ i.e., government should establish an entrepreneurial government that ensures that public services are provided rather than delivering services itself (Denhardt & Denhardt 2000, p.550). Policy making and policy implementation were treated separately and actors pursue their own strategies.

As governments have proven to be ineffective in delivering public services, the efficiency of the private sector was expected to turn around inefficient SOEs (Shirley & Walsh 2000; Bryson et al. 2006; Price 2007). PPP is one of the strategies under NPM. PPP addresses the problem of lack of transparency under a hierarchical network through the establishment of ‘clear and simple selection criteria for evaluating bids, clearly defined competitive

procedures, disclosure of purchase price and buyer, well defined institutional

responsibilities and adequate monitoring and supervision of the program’ (Kikeri, Nellis, and Shirley 1992 as cited Hodge & Coghill 2007, p.683). Government functions that can be more efficiently performed by the private sector were privatised. The policy objectives of PPP assumed that the superiority of the private market alone is enough to improve public service delivery. The introduction of superior private management efficiency and market mechanisms were expected to transform public services organisations into efficient and effective organisations (Megginson & Netter, 2001 as cited Pérard 2009, p.197). PPP has been viewed as abandonment of the government of its public responsibilities and the

failure or success of the privatised infrastructure service has become the sole responsibility of the private firm.

From vertical networks, PPP has changed the governance structure of public services into horizontally-organised market structures (Adam & Kriesi 2007, p. 130) where the state is a disaggregated entity within a principal-agent context (Osborne 2010b, p.8). Government itself is run like a business and government units are in competition with non-profit and for- profit sectors to ‘loosen the inefficient monopoly franchise of public agencies and public employees’ (Denhardt & Denhardt 2000, p.551). Whereas public interest is defined by law and public services are performed by the government under a hierarchical market, public services under a market-like network are performed by the private sector whose obligations are defined under a contract. Market-like networks view the public and private sectors as independent entities. The state takes on the role of regulator and the private sector delivers the public service. The performance of the private sector is measured based on its

intraorganisational processes and management to produce the public service in the most efficient and economical way (Osborne 2010, p.8).

2.4.3.3 Relational networks

Contrary to the notion under market-like networks that public and private actors are independent, PPP transformed the governance structure of public services into a relational network where public and private actors work together. The focus of NPM on the

contributions of individual organisations deflected attention on the impact of

interorganisational collaboration in public management (O’Flynn et al. 2013, p.17). Unlike hierarchical networks, relational networks are autonomous and self-governing and resist government steering (Adam & Kriesi 2007, p.130). There is now an increasing number and wide variety of autonomous public and private actors involved in policy making and policy implementation whose relationships are interdependent and non-hierarchical (Adam & Kriesi 2007; Kenis & Schneider 1991; Herranz 2006; Provan & Milward 1991; Van Gils & Klijn 2007).

While PPP has made the private sector the direct provider of public services, the private sector still has to work with a number of public organisations as service provider. PPP has created a relationship between the public and private sector that is characterised by ‘long- term social exchange, mutual trust, interpersonal attachment, commitment to specific partners, altruism and cooperative problem-solving ’(Davis 2007, p.386). Relationality is created in PPP because contracts for privatised public infrastructure services are a result of rigorous negotiation between legally equal and autonomous parties (Ring & Van de Ven

1992, p.487). These contracts usually involve long-term and highly specific investment that cover a continuum of operations, including financing, design and development, operation and ownership that span from 20 to 40 years (Ring & Van de Ven 1992; Hodge & Greve 2007). Contract is the device that facilitates exchange between parties, creates rights and duties that have legal force and sets legal sanction in case of failure to comply (Vincent- Jones 2000, p.320). The extent, coverage, and duration of these contracts make it imperative for parties to commit to the contract and trust that each party will comply with its terms over the contract duration.

Contracts are not self-implementing but require the commitment of parties to make it effective. In this contractual relationship, the ‘responsibility for service provision is

dispersed among competing private, voluntary, and public providers, while responsibilities for policy making and purchasing are retained within the state sector, with purchaser– provider relationships taking a variety of contractual, partnership and mixed ownership forms’ (Vincent-Jones 2000, p.319). While the contract dictates that parties be cooperative with each other, it is inevitable that the relationship can be conflictual at times. These actors come from different organisations, each having its own goals and objectives to fulfil, and as such, each may have different strategies to achieve their goals, which may conflict with one another (Adam & Kriesi 2007; Van Gils & Klijn 2007).