The recent global economic crisis has posed significant questions not only to the management of the financial institutions but also to the budgeting and, furthermore, to the Governance structures.
The paper reviews the different periods of budgeting theory, starting from the one- size- fits- all “Performance Based Budgeting”, going on to the managerial era, when budgeting had been transformed to the basic tool of a social engineering, and from there to the New Public Management which was considered as an instrument of “cutting back” policies and, finally, to the Governance concepts of the new millennium.
The paper sees the current crisis as an opportunity for the emergence of a sounder budgeting theory, since all basic notions, such as steering, trust , regulatory capture, etc. have indicated the theoretical and practical vacuum of the current Governance/Budgeting theorems.
The main point of the theoretical proposal of the paper is a re-balancing between the global, regional and local identities which participate in the governing and budgeting process. To that direction a lot of systemic failures can be avoided. The paper concludes with some theoretical work assumptions after having examined a typical budgeting failure concentrating on the Greek case.
DevEX - reference for building teams, processes, and platforms
The crisis effect on performance based budgeting
1. THE CRISIS EFFECT ON PERFORMANCE BASED
BUDGETING
PANAGIOTIS KARKATSOULIS
National School of Public Administration, Athens, Hellas
ABSTRACT
The recent global economic crisis has posed significant questions not
only to the management of the financial institutions but also to the
budgeting and, furthermore, to the Governance structures.
The paper reviews the different periods of budgeting theory, starting
from the one- size- fits- all “Performance Based Budgeting”, going on
to the managerial era, when budgeting had been transformed to the
basic tool of a social engineering, and from there to the New Public
Management which was considered as an instrument of “cutting back”
policies and, finally, to the Governance concepts of the new
millennium.
The paper sees the current crisis as an opportunity for the emergence of
a sounder budgeting theory, since all basic notions, such as steering,
trust , regulatory capture, etc. have indicated the theoretical and
practical vacuum of the current Governance/Budgeting theorems.
The main point of the theoretical proposal of the paper is a re-balancing
between the global, regional and local identities which participate in the
governing and budgeting process. To that direction a lot of systemic
failures can be avoided. The paper concludes with some theoretical
work assumptions after having examined a typical budgeting failure
concentrating on the Greek case.
Key words: Global economic crisis, governance, budgeting, social
systems theory
THE MANAGERIAL FOUNDATION OF
BUDGETING
The global economic crisis poses significant
questions to both the theory and practice of budgeting,
disputing the validity of well established theorems and
practices.
2. 450 PAQ WINTER 2010
The crisis questions the core notion of
“performance” as well as other cardinal concepts of
Performance Based Budgeting (PBB), such as the “greatest
return in social utility” (Downs 1960), “political and social
consent” (Key 1940)- notions central to the way state
resources were allocated during the previous five decades.
The crisis influences the budgetary agenda, as new
facts arise (such as climate change, clean energy,
employment policies) which call for a revision of the
methods and tools used up to now. Other issues which also
emerge refer to the internal organization of the structures
dealing with the budget as well as with the structures
involved in recruiting, training and evaluating their staff.
The discourse on budgeting has been going on for a
long time (Schik 1966): it is as old as administrative
science and has always been one of its major issues.
Administrative science and budgeting theory evolved in
close interconnection: the methods and tools used by
budgeting over time depicted the prevailing paradigm of
the administrative science.
This article intends to clarify the main
characteristics of the four distinct periods in the evolution
of budgeting, and to point out the weak points that should
be cured in the crisis aftermath. The conclusion drawn from
this mapping is that there is a need for a reinforced central
government model, different from any authoritarian or
imperative model of the past. (Economist 2010). PBB used
to offer a better, alternative, answer to the question “why
public money were spent to Action A instead of Action B”
(Key 1940) in comparison with the one offered by the
classic executive budget theory (Thurmaier 1995).
Given the scarcity of resources, it becomes even
more imperative to find the most appropriate criterion in
order to choose among different options. Notions such as
relative value, displacement costs (Lewis 1952) etc, should
3. PAQ WINTER 2010 451
be re-examined under the light shed upon them because of
the recent crisis.
Looking back at the initial managerial stages of the
budgeting theory one observes that a primary emphasis was
put on the central control of spending and the budget was
used to guard from administrative abuses (Caiden and
Wildavsky 1974). The detailed classification of objects of
expenditure which was the main characteristic of the
budget during the first period, turned out to be its weak
point. The monitoring of all expenditure lines required a
high capacity and led to the establishment of complicated
and extended control mechanisms. Thus, it was the
procedure of budgeting that gained all the attention and not
the very essence of the budget itself, which is to pursue
policy outcomes. Such an approach to the budget is not
viable especially in the aftermath of the economic turmoil.
When budgeting entered the matured managerial
era, it was disposed of the weaknesses observed during the
first period. Its main objective was to manage the efficient
performance of work and prescribed activities.
Performance budgeting, officially introduced by the
Hoover Commission (Cothran 1993), was the major
contribution of the managerial era to budgeting. During this
phase, the emphasis was given on the efforts to avoid the
social engineering of reform; namely, to obviate the
mechanistic transformation of budgeting and render it a
tool to change the state and society (Lynch 1995).
It was considered (Bouckaert 1994) that the
objectives of budgeting would be better accomplished
through the implementation of a set of techniques, capable
to replace the simple balance sheet debit-credit accounts
and reflect the financing of (a sum of) (Boorsma and Mol
1995) single actions incorporating policy goals and aiming
at specific results (Bouckaert 2002).
Managerialism's weak point was a metaphysical
understanding of rationalism, since the absence of the
4. 452 PAQ WINTER 2010
"super managers" translated as lack of necessary
prerequisites to implement a management oriented
budgeting. The heterogeneity between the goals and the
means to attain them, the difficulty to connect strategy and
implementation as well as the absence of concrete goals for
each public organization hinder the success of PBB,
especially when it came to economic and financial
turbulences (Bier 2006).
The reasoning of performance based budgeting
grew more mature, as it was structured in a next step, in a
systemic way. Information, criteria, indicators and financial
flows were networked and took stock on each other striving
for better choices and decisions (Posner P., Ryu S. K. and
Tkachenko A. 2009). Some quite important institutional set
ups had been undertaken, mainly for the strengthening of
controls and the evaluation of the results of the budgetary
process, through the empowerment of parliaments and audit
offices (Peters and Savoie 1996). A determinative factor of
success is considered to be the strengthening of the
administrative capacity of the Ministries of Finance as well
as of the financial department in every other Ministry and
organization that spends public money. The frequently
observed lack of the capacity of public organizations to
identify themselves and their various long-standing
shortcomings (lack of reliable data, low learning capacity,
poor communication with organizations and stakeholders)
have often led to a re-allocation of the existing budgetary
codes after linking them to some “objectives” and “results”
(promulgated but not real) (Walters 1994).
This was followed by a focus on the planning and
projecting function of the budget, rooted in the Keynesian
economics, according to which a country's economy
depends a lot on public expenditures.
Nevertheless, the discussion, in this phase, remains
introvert, one-dimensional (basically of a monetary
character) and asocial, despite the vivid theoretical
5. PAQ WINTER 2010 453
discussion on “quality” (Bouckaert and Peters 2002),
“ethics” (Melkers and Willoughby 1998) or “organizational
change” (Pollitt and Bouckaert 1995) which resulted to
suggestions (Caiden 1988) about the best way to transform
budgeting (Rabin 1992). But, in spite of all good,
theoretical, intentions (Lee and Johnson 1989), the results
were feeble (OECD 2007).
BUDGETING IN THE GOVERNANCE ERA
The concept of governance marked the next
qualitative differentiated phase of the relevant discussion,
as it was called to cover the “deficit” of legitimacy in
performance based budgeting. Governance puts emphasis
on networking and the re-establishment of confidence
among the stakeholders (World Bank 1994).
Governance accentuates the social dimension in the
procedure of drafting, monitoring and evaluating policies
(Halachmi and Boorsma 1998). Therefore, a non linear
quest takes place in order to find a modus vivendi between
the supranational and national (central and local)
administrative state, markets and civil society. The
adoption of goals, results and indicators is no longer based
on established subjective notions, but it is happening in a
systemic context, in order to reflect the interface of each
subject and its environment, adding to their credibility and
coherence.
Following the above mentioned principles and
orientations, some significant issues of social/political
character have been raised about budgeting. The emphasis
should henceforth be on the re-examination of the relation
between policy goals/results and their budgetary prediction,
whereas the societal character of the budget prevails
compared to the “econocratic” one (Pollitt and Bouckaert
2004). The rise of the political dimension of budgeting
6. 454 PAQ WINTER 2010
mainly stems from its strategic and operational forecasts,
particularly the long term ones.
A remarkable set of questions has been expressed
by various authors (Mintzberg 2000) who do not see the
direct relation between budgeting and strategic planning.
They basically doubt the methodological way of linking the
goals and reform intentions to the budget, in the sense that
strategy, which the budget is supposed to support,
constitutes mainly an irrational exercise (myths, beliefs,
etc), while budgetary predictions should be as rational as
possible (Miller, Rabin and Hildreth 1987).
However, the desire of people in power to uphold
their status undermines the objectiveness of the budgetary
forecasts, because of the high political cost. On the other
hand, social self-reflection, contributing to the
sustainability of budgetary forecasts, can only be achieved
through a painful and time consuming procedure of
redefinition of the public and social values (Luhmann
1997). The toilful procedure of self-reflection is necessary
in order not to wrongly determine the values and the social
myths which are to be served by the budgetary
expenditures (Moynihan 2004). It has been noticed
(Ciborra 2002) that in the case that those values and myths
are wrongly determined, budget deficits may be observed.
According to the above mentioned estimations,
budgetary policy should be conceived rather as a
“framework” of goals, means and results than as the direct
linkage of outcomes with expenditures. A framework
allows for more (equivalent) solutions to budget’s goals - a
kind of a supportive instrument to the annual decisions
taken by the respective society and administration. When it
comes to the annual budget, one has to deal more with a
psychological than with a rational issue, since it reflects
more the anxiety of the budget people regarding time span
than a consistent choice based on long term predictions
(Sun and Lynch 2008).
7. PAQ WINTER 2010 455
Governance took budgeting ahead but remained a
loose frame offering no operational solutions. Governance
did not succeed to broaden, in a non-ontological way, the
notions of trust, responsibility and accountability and lend
to them a social meaning beyond that of the mere
representation and collectivity (Sztompka 2000).
Governance, furthermore, did not create psychological and
cognitive expectations, which counterbalance the
limitations of the rational forecasts and allocations (Bevir
and Rhodes 2001).
Governance, finally, did not provide a fertile ground
for the establishment of new, more effective mechanisms to
monitor the budget. These mechanisms could have been
based on the networking and substantial participation of all
those who are affected by the budget. According to the
Governance principles, consensual control models, like
peer reviews or the European “open method of
coordination” are to be preferred, but, even so, not
uncritically: They have to be adapted to the established
political and administrative control culture (Pollitt and
Bouckaert 1995).
Another weakness of the current Governance
concept lies in its drawback to dealing effectively with
crisis phenomena, an issue that might be attributed to a
lesser epistemological clarity. The critique expressed, from
the very beginning of the discussion about Governance,
was about the missing practicability of its solutions and has
recently re-appeared in the discussion regarding the global
financial and economic crisis. Applicable solutions and the
final decision per se have not been properly developed in
their qualitative and communicative nature. That is a piece
of knowledge, which has been gained thanks to empirical
studies (Latin America, Africa) on Governance (Plumptre
and Graham 1999) showing that a re-definition is needed.
Governance has to distance itself from certain
theoretical foundations, (such as the “rational-choice”
8. 456 PAQ WINTER 2010
theory), which are underlying its epistemological
foundation, to a “power based model of change” (Bovaird
and Loeffler 2001). The necessity to renounce the
piecemeal approaches with insufficient content (Opello and
Rosow 2004), in favour of an unconditional empowerment
of Governments (Pierre 2000), is again in the spotlight
because of questions the crisis left unanswered. Moving
from the current Governance concept onwards, both theory
and practice elaborate on the reinforcement of coordination
and policy coherence. All levels of government are equally
asked to undertake responsibility for the promotion of
relevant actions.
Governance based approaches to budgeting relied
heavily on credible indicators measuring and evaluating its
efficiency on certain policy areas. Strategic forecasts are
particularly difficult because of the high capital
investments required for their attainment. Therefore,
composite indicators were required to monitor budget
implementation, instead of the univocal results indicators
usually used (Saltelli 2006). Composite indicators offer the
advantage of a broad general view of procedures mapped
out in various parameters. Laying down and keeping tabs
on such composite indicators shifts the observation point of
every defined legal and administrative policy closer to its
goals. The selection of the appropriate indicators as well as
the definition of the weight attributed to each of their
constitutive parameters is in itself a political process, which
may be better achieved through a participatory and
deliberative procedure.
Decentralization is also a crucial parameter of a
successful performance based budgeting. The connection
between decentralization and budgeting has been re-
invented through the “multi-level” governance discussion
(Cothran 1993 and Doern and Johnson 2006). The
proposed model is that central governments undertake the
responsibility for their own budget only, while local self-
9. PAQ WINTER 2010 457
governments for the regional and local budgets. The
implementation of the model proved quite unproductive,
since it leads to tensions and conflicts between central and
regional governments (Grizzle 1987), especially as far as
compliance and control functions are concerned.
The multi-level governance approach is not a mere
structural decentralization. It focuses on policy areas and
attempts to improve the efficiency of the public entity,
offering a public service at whatever level of governance
that entity may be. However, even in the context of multi-
level governance, the discussion focuses on the
“management of budgeting” instead of the budgetary
policy’s functions, the content of the policy itself and the
prevailing values.
THE QUESTIONS INTRODUCED BY THE CRISIS
The reduction of policy and social problems to
technical or structural ones befogs the actual query about
effectiveness. As the attempts to exit the economic and
financial crisis have shown, it is crucial for public decision
making and public policy building to have explicit
knowledge of the field a reform takes place: Many of the
measures adopted to confront the crisis should have been
implemented at the local level, but policy advisors were not
aware of the administrative capacity at that level of
governance, so the measures were not properly effected,
resulting to further money losses (Posner P., Ryu S. K. and
Tkachenko A. 2009).
The economic and financial crisis has shown that an
organization may be equally ineffective in pursuing a
policy, regardless of the content and methodology, either if
it was designed bottom-up or top-down. Governmental
decisions on budgets without their legitimacy will continue
to be conceived as an allocation problem, identified in a
simplistic monetary sense (or, in some other cases as a
10. 458 PAQ WINTER 2010
“management skills” problem) (IMF 2001). The economic
and financial crisis offered a relevant example, when many
countries proceeded to allocating stimulus packages to be
administered at the regional or the local level. But as the
capacity at those levels was not always adequate, the result
was inefficient management and lack of transparency.
Transparency is considered as a collateral damage of the
central-local budgetary interdependence and a quite long
discussion was focused on its ideal linkage to budgeting
(Blöndal 2002).
We may consider the arguments about transparency
in budgeting as one more episode in a metaphysical
understanding of social and governmental notions and
contexts.
There is a rather undifferentiated discussion
about “weak governments”, “regulatory capture” and “lack
of trust”, mostly perceived from a moral (instead from a
social) point of view. But even among social scientists,
trust has only marginally been considered as a mechanism
for reducing the complexity of the globalised world (and
consequently economy), which overcomes the barriers of
causal unequivocal interpretations (Luhmann 1988). Trust
should be conceptualized as an attribute of the
institutionalized system of Governance and in this sense
Governance sets the framework to redefine the design,
implementation and monitoring of policies in a systemic
way.
The most important question in budgetary research
is about the guarantors of the consistency and the “social
return” of actions among the spenders of public money.
The termini “steering” and “coherence” of actions are used
interchangeably to describe both a self-referred way of
organizing as well as a way of exercising power over others
in order to better govern. The experience from dealing with
the current crisis also attests that coordination can only be
achieved by powerful and coherent governments. Thus, we
11. PAQ WINTER 2010 459
could set forth, as a predictive behest for the budget, the
necessity to support the coherence of government. The
tricky part is to achieve coherence without slipping towards
centralization and authoritative management.
Governments are entrusted with two different
functions: On the one hand, they establish collective
binding decisions and, on the other hand, they are
stakeholders in the legitimacy process of these decisions.
Governments should, of course, preserve, inside the
stakeholders’ network, their distinguished character. It is
under this condition, Governments and the “political
economy of reform” (Tommasi and Velasco 1996), shall
avoid the traps of bureaucratization of politics (World Bank
1995) and, at the same time, re-gain some of their lost
reputation.
But, for these certain purposes a redefinition of
Governance is needed. It should in an organic way
incorporate global, regional, and local characteristics of
governing to a unique notion. In order to do that, many
cases have to be studied and some concrete examples of
failures and successes have to be thoroughly examined. It is
in this direction we present the case of the Greek budgetary
policy and reform.
The Greek case will be elaborated upon in order to
evaluate what has been achieved so far trying to construe
the jigsaw of economic and political factors affecting the
budget, in order to draw a road map for a successful
transition from the current budgetary policy to performance
based budgeting, in a re-shaped context of Governance.
GREEK BUDGETARY POLICY AND REFORM
Budgeting reforms in post war Greece are correlated
to the Ministry of Coordination. It was established in the
early 50s mainly to undertake the coordination of foreign
economic aid and to promote the development of the
12. 460 PAQ WINTER 2010
country. Most of the institutional, organizational and
administrative structures and functions of the country were
established under its leadership. The criticism exercised to
the Ministry of Coordination regarded the fact that its
policy agenda has been formulated as a response to the
flow of foreign aid to Greece during the post war period
instead of an elaborated national development strategy
based on the existing needs of the economy and the society
(Porter 1950). Although budgeting in Greece has been
constantly described as an “instrument of development”
(Diomides 1905), it was handled rather as a facilitating
instrument to support extraneous priorities than as an
instrument to serve broader public interest.
The criticism was rather accurate, as the same
pattern re-appeared some decades later, when Greece
joined the European Union. Apart from the national
priorities, there were new imperatives deriving from the
acquis communautaire and the European conventions
whose fiscal policy was called to support, thus becoming an
instrument for the integration of Greece to the EU. The
main policies which the budget had to support were the
regional development, the macro-economic stability and
the micro-economic alignment to the Lisbon goals
(competitiveness, administrative reform and better jobs)
(European Commission 2005). The growth strategy was
then focused in following the indexes and indicators
monitoring the attainment of the policy priorities imposed
by the EU, consequently disorientating the country from
the development of initiatives for structural reforms, in
order to heal the systemic failure of the Greek state.
Examining the current situation from an
organizational point of view, the Ministries of Economy
and Finance and the Ministry of the Interior, which are
involved in the budgetary policy, have been two separate
entities during the last two decades. Furthermore, when it
comes to the internal formation of the Ministry of Economy
13. PAQ WINTER 2010 461
and Finance, a fractured structure appears once more: The
Ministry of Economy merged with the Ministry of Finance,
in 2002, but only nominally, since economic policy design
was practically separated from fiscal policy implementation
and control. The necessity of reducing the number of the
Ministries had led to another quasi reform. As a result the
economic, financial or organizational performance did not
improve.
Structural discrepancies led to policy
inconsistencies: Although regional development and
decentralization has been a promulgated goal, financial
management and budgetary control remained heavily
centralized. Some competencies and resources were,
indeed, decentralized but the strategic planning capacity of
the local government was not enhanced
Some cultural as well as historic issues were added
on top of structural and policy inconsistencies. Clientelism
and rent seeking pushed the already tight budget to the edge
augmenting its deficit. The large numbers of the so-called
“special accounts” as well as the continued accruals in a
series of deficit budgets is a proof of that. Legalism,
adhocracy and political maneuvers also hindered the efforts
to modernize budgeting: As a matter of fact, during the first
eighteen years (1975 – 1993) after the military junta in
Greece, one hundred thirty four (134) bills were enacted,
regulating the prices and income policy.
The General Accounting Office (GAO), competent
for drafting the budget and monitoring its implementation,
supervised by the Ministry of Finance, suffers from internal
tensions: On the one hand, there is the strong ex ante
control culture and, on the other hand, the decentralization
policy is going on for almost two decades. The transfer of
some dispersed competencies to the local level of
governance was not followed by a corresponding re-
alignment of the relevant budgetary structures. The GAO
established a well centralized control mechanism, through
14. 462 PAQ WINTER 2010
the Financial Control Units (YDE) belonging to the
Ministry of Finance and located within the line ministries,
the prefectures, some major municipalities and other public
organizations. They are independent from the public entity
which hosts them, their mission being to control the legality
of the entity’s expenses. On the other hand, budgeting
priorities are set according to the programme, policy and
wish of the elected local governments. The line ministries
as well as the regional and local authorities remained mere
recipients of centrally made decisions about resource
allocation.
The Municipalities are funded by the state budget
through a procedure that involves two decision centers and
consequently two poles of political power: The dominant
player is the Minister of the Interior who takes the final
decision on the exact amount of funds to be allocated to
each municipality. On the other hand, it is the Minister of
Finance who decides on the ceiling of each category of
municipality expenses. The Union of Municipalities of
Greece is also a significant political player, since decision
makers have to take into account its proposals on how the
resources would be allocated. Having not declared and
communicated a clear strategy on political, fiscal and
administrative autonomy of the local self-governments the
different rationale of each one of the participants to the
decision making on the budget allocations to the
municipalities, leads to tensions among the major
stakeholders.
With a rigid ex ante control framework in place and
people who have developed an organizational culture
towards administrative but not performance scrutiny, the
budget reform efforts face the challenge of balancing those
internal system tensions.
Some hesitant reform efforts took place during the
past five years, namely the enactment of the regulatory
framework for Public Private Partnerships (PPPs), the
15. PAQ WINTER 2010 463
elaboration of the municipal business plans and the pilot
programme for performance budgeting.
PPPs were widely used in the mid-'90s as an
antidote to the feeble results of the nationalization
movement which was prevailing in the '80s. Most of the
projects for the Olympic games in 2004 were also
undertaken through PPPs. But as no regulatory framework
was in place until 2005, there is no concrete evaluation of
all the PPPs projects undertaken up to then and their
efficiency was not always obvious. When the PPPs were
regulated a PPP unit has also been created at the Ministry
of Economy and Finance, in order to promote and
scrutinize PPP projects (Karkatsoulis, Plymakis,
Stefopoulou 2009). It could, moreover, serve as an
overarching unit to embed PPP initiatives in the country’s
growth vision.
It is not only the two parallel decision centers that
disrupt the coherence of the municipal budget, but the
institutionalization of a parallel funding structure which
creates extra administrative burdens to the municipal
budgetary mechanisms. Some significant extra resources
are given to the municipalities through a special project
“Thiseas”, managed by the Ministry of the Interior.
Thiseas’ expenses are not integrated in the state budget but
in the annex to the budget, the “Public Investment
Program”. The municipalities are funded on the basis of
project proposals, making it difficult to track the total
expenditures of a municipality. The municipalities have
thus to face the fact that the central state decides on the
scope of the investment of their allocated budget, which
leaves no room for local initiatives and accountability to
flourish.
The fragmentation of the budgetary procedure,
along with the fragmentation of competencies and of the
accountability procedures, is not an isolated phenomenon
detected only in the budgetary management at the
16. 464 PAQ WINTER 2010
municipal level. In fact, most of the reforms implemented
in Greece end up fragmented, although they were designed
in a rather comprehensive and systemic manner. A typical
example is offered by a reform initiative implemented in
the mid '90s. It was the decentralization program
“Kapodistrias”, initiated in 1997 to reform the local self-
government. It reduced the number of municipalities from
6500 to 1000, but did not allocate to them the budgetary
autonomy. Lack of ownership of the local economic and
fiscal policy led to a politically manipulated bargaining
between the local and central level of government, resulting
to the inflation of the deficit and the public debt of local
administrations. These problems are now intensified,
because of the global economic crisis.
It is only with a recent (2008) decision that a
municipal budget is attempted to be connected to an overall
strategic planning. Municipalities with a population over
20.000 inhabitants have to present an Action Plan where
the expenses and the intended results should be highlighted.
Although it took over 1.5 year for the Municipalities to
elaborate the Action Plans, they face serious difficulties
when it comes to their reliability. Since the allocation of
competencies to the Municipalities is still evolving in an
incremental way, they cannot guarantee a certain quality of
services to be provided by them. Some of the horizontal
competencies usually allocated to the local level of
government (both regulatory and operational) are still
exercised by the central Government. Primary regulatory
power remains to the Ministries while linking mechanisms
between the levels of government (local and regional) are
missing.
The central response to the request for a
modernization of the budgetary policy came in 2007, with
the launching of a “programme based budgeting” reform. It
is an effort, aiming at the introduction of performance
budgeting in Greece, in order to fight some major
17. PAQ WINTER 2010 465
deficiencies of the current budgetary policy such as: the
weak top-down process, its fragmented and detailed
character and the lack of a single cohesive budget which
offers a clear snapshot of the state income and
expenditures. The reform effort was launched by the GAO
in cooperation with the OECD (OECD 2008), in the
framework of a three years agreement. A pilot performance
budget for the Ministry of Culture and a functional
classification of the entire budget became part of the 2008
budget (as an appendix to the annual budget) and it was
characterized as “an excellent first step that clearly will be
a great help in making the budget a more modern strategic
policy document” (OECD 2008). A similar pilot for all
Ministries on a performance basis has been included in the
2009 budget. The initial plan was to shift to a final
Programme Based Budgeting by 2012, after having
evaluated the results of the pilot projects. In spring 2009,
the government announced the acceleration of the
procedures to fully adopt programme based budget, so that
all Ministries draft a programme based budget by 2011.
The GAO used the “Classification of Functions of
Government” (COFOG) methodology (United Nations
2000), to classify general government expenditure into
policy areas in order to analyze the effectiveness and
efficiency of general government spending. The GAO
asked from the line Ministries to present goals which
should be attained and performance indicators according to
which their results would be evaluated. The officials called
to submit a proposal for program budgeting reacted with
the well known, already in place, incremental budgeting,
simply by recapitulating existing expenditures under the
new rubrics of the COFOG classification.
The main shortcoming of the performance based
budgeting attempt in Greece is its weakness to connect
goals and results to estimated expenditures and finally
allocated expenses.
18. 466 PAQ WINTER 2010
Although the institutionalization of setting goals
and performance indicators took place in Greece in 2004,
they were never interconnected to the factual administrative
actions which followed according to the “command-and-
control” model and the legal competencies on which the
Greek public administration has been founded.
However, it is not only the “light” goal setting that
cancels the rationalization of the budget but it is also the
fragmentation of the administrative system, which makes
extremely difficult to follow up -if at all- on the goals set
by a public organization and to assess the return of its
“social utility”. 19 Ministries (within some of them exist
other smaller coming from unfinished mergers), 13
Regions, 54 local governments of second tier and 1034
municipalities are producing a chaotic regulatory
environment for citizens and businesses. Even if the
Ministries were obliged to connect their activities and
projects with goals and performance indicators, it would
have been impossible to coordinate and follow up their
implementation without clearing the regulatory jungle. A
new merger plan to reduce the number of municipalities by
two thirds has been recently announced.
The present structures for the monitoring of the
budget implementation should be strengthened. The Greek
Court of Auditors, established in 1833 according to the
French “Court des Comptes” (Charisis 2006), has a heavy
work load, scrutinizing ex-ante the expenditures but the
results are still to come.
The empowerment of the Parliament should be a
priority as well. An amendment to the Parliament’s Rules
of Order concerning the budget procedure was added in
June 2008, providing that, in the future, the Parliament will
be able to make modifications to the budget, if the budget
totals remain unchanged – i.e. the Parliament can re-
allocate between line items and not only vote on the budget
on a block basis.
19. PAQ WINTER 2010 467
There is a necessity to provide a unified budget
which includes all expenditures and revenues. As a first
step toward integration, top-down ceilings should be
imposed on the budget and the investment budget data
should be included in program budget presentations
(OECD 2008)
The use of the economic assumptions should also be
streamlined in order to enhance the forecasting process. A
full set of data for making forecasts should be added to the
circular which is being sent out to the Ministries every
spring. Such data should include projected GDP growth,
inflation, unemployment, social security insurance take up,
demographic developments, and other variables or
indicators that are of importance in the forecasting process.
Budget documentation should include multi-year estimates
(years t+2 and t+3) on the basis of maintaining current
policy. These estimates should be at program level and
continually updated in the light of new policy decisions.
The capacity of the GAO to conduct ex ante and ex
post value-for money analysis should be strengthened.
Accordingly, its responsibility for both the investment and
the ordinary budget should be institutionalized. The use of
net budgeting (i.e. the budget containing only the transfer
of funds, not the total expenditure) to fund public law
entities and hospitals should be reformed as well, shifting
to a gross budgeting basis as recommended (OECD 2002),
since the present situation creates transparency problems.
The above mentioned suggestions lead, in the short
run, to a rationalization of the current budgetary policy. At
the same time, the streamlining of broader reforms, which
shall create the conditions for the sustainability of short
term reforms, is urgently needed. Such reforms are related
to the improvement of strategic planning as well as the
enhancement of the administrative capacity of the entities
which spend public money.
20. 468 PAQ WINTER 2010
An opportunity to deliver long term reform
programs is provided through the EU co-funded structural
funds Operational Programme “Public Administration
Reform 2007-2013”. The experience from its poor
implementation shows though that a high degree of inter-
governmental coordination and coherence is needed. The
Government should urgently achieve the improvement of
its effectiveness and efficiency towards the implementation
of both short and long term reforms.
If the attainment of reforms, over time, is a difficult
task, under the crisis it seems a much more difficult target.
But, there is also a strong counter-argument: The crisis
offers a good opportunity for reforming and re-organizing
both central and local governments, otherwise “an
exemplary crisis opportunity will run to waste” (Gurria
2009)
The impact of such a reform shall have a positive
impact on budgeting. The reform agenda should be
broadened in order to encompass the highest level of
government which, up to now, was left out. A restructured
government could act as a fertile environment for
budgeting, curing many of the shortcomings previous
efforts failed to deal with.
TOWARDS A NEW GOVERNANCE CONCEPT:
FROM NETWORKS TO SYSTEMS
The Greek case is not unique in what it concerns a
poor budgetary policy and a mal implemented budget. In
many countries, European or not, the reforms attempted
towards the implementation of a PBB system met
substantial difficulties. What caused them was the lack of
osmosis between the principles and methodologies of PBB,
as they have been developed so far, and the uniqueness of
the political, cultural, economical identity of each country
(Eigen 1979). The initial Governance proposal which
21. PAQ WINTER 2010 469
attempted to solve all the reform’s problems by simply
summing up its main components (economical, political,
administrative etc.) had either failed, or had hardly offered
any result.
A re-definition of governance, enriched with the
crisis input, needs to confront with the regressive
approaches on the state’s role: A “command and control”
state model isn’t an appropriate path to go. Still, more and
better guarantees for the proper function of the markets in a
“social market economy” can be provided by a decisive de-
centralization policy instead of a re-concentration of
competencies. Multi-level coordination instead of
authoritative decision making and enhancement of
accountability in all levels of government can provide a
suitable context for a healthy cooperation of the state and
market’s institutions. A new governance scheme must
emphasize on a ‘whole-of- government- approach” and
integrate – through a process of self-knowledge and self-
reflection– functional and structural elements of the policy
cycle, such as planning and monitoring of the
implementation of goals and strategy, as well as of the
mechanisms for the assessment and redesign of policies.
Institutional trust becomes, that way, a more introvert than
extrovert issue.
In the systemic public policies, the co-existence and
cooperation of social sub-systems, depends not on their
specific goals but on their ability to share the same basic
value set. Moreover, the criteria for the assessment and
evaluation of their performance should be established and
monitored by the sub-systems themselves (Luhmann,
2000). This is a crucial difference from other approaches
that considered a personal disappointment from institutions
as critical to their efficiency (Rothstein, 1998). According
to our concept, there is no specific point, “out there” from
where one could observe and evaluate a self-referential
social sub-system. Anybody who is affecting or being
22. 470 PAQ WINTER 2010
affected by governance and its interfaces with the other
social systems, is an environmental element and
participates, ex definitione, throughout the policy cycle.
In this approach, governance is perceived as
emerging from the interface among the social subsystems.
Trust and distrust of the participators is an indicator of the
quality of the system’s internalized environment; what in
other words has been described as “emancipation of a
social structure” (Mishler and Rose, 2005). In a self-
referential governance system there are no restrictions on
the expression of contradictory opinions, interests or
conflicts in any given part of it.
The divergent degree of the emancipation of the
system’s parts reflects to the identity of the social system.
Therefore, “internal” and “external” structures and
functions of a system, as well as “human capital” and
communications, provide an indication about its maturity
degree. The same goes to the inter-systemic communication
and interactions, mostly known as “networks”. The inter-
systemic trust, should be understood as an internal affair of
the network itself.
The budgeting theory should, thus, be revised in
such a wider context of governance. Accordingly, its main
notions such as "performance", "networks" etc, should be
re-conceptualized. It seems an unavoidable prerequisite for
PBB to remain “alive and well” (Boorsma 1999).
23. PAQ WINTER 2010 471
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