Globalization and Public Administration: A Complex Relationship
Globalization and Public Administration: A Complex Relationship
Globalization and Public Administration: A Complex Relationship
ISSN: 1971-890X
Globalization and public administration: a complex relationship
Abstract
The paper examines the relationship between globalization and
public administration through economic theory principles and an ex-
ample. Starting from the consideration of early concerns about glob-
alization, it argues that although the size of government has rarely
declined, its power has been eroded, making room on the one hand to
the quest for global public goods, while on the other hand urging for
more local public goods and decentralization. University education,
mainly publicly supplied in Italy as well as in many European coun-
tries, exemplifies the awkwardness of introducing best practices in a
context of asymmetric information with many idiosyncratic features.
Department Informations:
Piazza Oberdan 3, 62100 Macerata - Italy Phone: +39 0733 258 3960 Fax:
+39 0733 258 3970 e-mail: csampaoli@unimc.it
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University of Macerata, Dipartimento di Studi sullo Sviluppo Economico, Piazza Ober-
dan 3, 62100 Macerata-Italy, croci@unimc.it
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Elisabetta Croci Angelini / WP n.28 DiSSE, University of Macerata
1 Introduction
The debate on globalization and its effects has been with us since about the
last two decades. During this time, it has moved from what was regarded
as the most likely - either feared or welcomed - future scenarios and their
peculiar features, to the appraisal of various consequences - whether actually
related, or as a sheer outcome of speculation - on sometimes previously un-
foreseen realms. Not surprisingly, by now the term “globalization” itself has
come to refer to a variety of meanings according to the various domains where
its effects are deemed to have taken place. Globalization hints at political,
financial, cultural, industrial, informational, linguistic, social, legal effects,
just to name some of them.
In what follows, I will mainly refer to economic globalization: the inte-
gration of national economies into the international economy through trade,
foreign direct investment, capital flows, migration, and where a major role
is performed by information and communication through the spread of new
technologies (Bhagwati, 2004). To an economist, the very first foreseeable
outcome of economic globalization implies a tendency to the advent of price
convergence everywhere, having taken into account the conversion from a
currency to another one according to the nominal exchange rate. The re-
moval of market segmentation due to a variety of possibly non competitive
conditions- whether assessed through partial equilibrium analyses (i.e. mar-
ket by market) or according to simple two-goods-two-factors-two countries
general equilibrium models - leads to the so-called “one price law” predicting
the same price for (homogeneous) goods, capital and labor in both coun-
tries. This is why an envisaged consequence of globalization was, on the one
hand, a more “uniform” world in terms of prices, and on the other hand, a
disturbing “race to the bottom” in terms of quality (the obvious reference is
to Gresham’s law according to which bad money drives out good money).
So, how does public administration, operating essentially on an extra-market
sphere, enter this picture?
The economic analysis of public administration2 developed by public
choice (Niskanen, 1971, 1994) focuses on self interest as the major charac-
teristic defining the rational behavior for every economic agent, not only for
2
Since public administration is identified as the management of government policies, in
the following sometimes public sector and public administration may be taken as synony-
mous.
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Elisabetta Croci Angelini / WP n.28 DiSSE, University of Macerata
those active in the private sector. Profits must be replaced with some other
maximand relevant for the public sector agents’ objective function. This is
done by the Public choice view (Buchanan and Tullock, 1962) asserting that
while politicians seek power through re-election, bureaucrats seek it by ex-
panding their influence and status. In both cases the public budget (taxes
and public expenditure) may be arranged and exploited towards unintended
ends. This rent seeking activity results in both actors playing a major role in
the public administration (i.e. politicians and bureaucrats) bound to hinder
optimal resource allocation, in a way similar to what happens to producers
operating on imperfect markets.
In addition, since the public administration provides its citizens with
mainly non-tradable services3 , in a globalized world another source of inhi-
bition, thwarting an optimal resource allocation, arises through the Balassa-
Samuelson effect, whereby differences in the relative productivity of the trad-
able and non-tradable sectors may coexist. Therefore, not only the law of
one price is prevented from being effective across countries, but sometimes
even its milder version, i.e. price convergence, does not take place. Hence,
the area of optimal resource allocation is deemed to have to be expanded4 by
reducing the size of the public administration in terms of both output and
employment. For all these reasons, one may conclude that the more glob-
alization proceeds, the more the public sector is bound to recoil. Do they
really oppose each other?
This paper will address the complex relationship between globalization
and the public administration by focusing on a number of general concerns,
related to the economics of the public sector. All issues related to public
economics, in so far as they require governmental power, may be exacerbated
by globalization. The Italian experience, itself in turn placed within the
European Union, is taken as the observation point to exemplify the argument
by looking at the case of tertiary education.
3
In addition, Baumol (1967) argues that governmental services are mainly provided
by means of labour intensive practices where labour saving technological progress - for
various reasons ranging from lack of investment to rent seeking inclinations – is very
slowly adopted.
4
This view disregards the second best theory (Lipsey and Lancaster, 1956) according
to which when one or more optimality conditions cannot be satisfied the second optimum
solution may be found away from, rather than approaching, the first best solution.
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Elisabetta Croci Angelini / WP n.28 DiSSE, University of Macerata
2 The concerns
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Source: Eurostat
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Source: Eurostat
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ment downsizing, they still may mask a huge redistribution involving a shift
in the preferences for redistribution of the median voter, which is bound to
interfere with the characteristics of the typical taxpayer (Sinn, 2003), as well
as in that of the emblematic public expenditure beneficiary. Furthermore,
no proposition may be expressed about the cost-effectiveness of any policies
pursued by the governments represented in those figures. Whether one ad-
heres to the view that the swelling in government size experienced in the 20th
century reflects a lack of safeguards apt to restrain government t power to
tax, or to the opposite view that praises government effectiveness in acting
towards common interest, the most recent evidence does not unambiguously
support any imminent advent of the minimal state.
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but the list ranges from the fight against contagious diseases to financial
stability) to the international realm. What is analytically defined a public
good may have to be delivered in a continuously changing dynamic environ-
ment where a state bureaucracy is unlikely to be particularly well suited to
incarnate the best solution. Indeed, the changing scope of national states’
sovereignty in a globalized world requires a re-definition of what exactly may
be regarded as a public good reasonably within the reach of the economic
and political dimension of the state. Still, as actual states’ dimensions differ,
this issue is unlikely to obtain a general and straightforward answer.
A first answer to the issues raised by national states increasingly void
of power has been a considerable resort to privatizations: the production of
goods and services, formerly provided by the state, has been shoved to the
private sector. Another answer seeks to try and attribute each task to the
appropriate level of government, and local public finance argument maintains
that, since populations differ in tastes (due to age structure, customs, culture,
or else) it will never be optimal to provide the same kind and amount of public
good to everyone (Oates, 1972; 1999). When cross border spillovers cannot
be disregarded, but are even expected to increase due to technology and to
the changes in habits it usually brings about, the answer requires to find
some ways so to enact a supra-level sort of government able to manage the
challenges posed by globalization (Kaul, et al. 2003).
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“Most knowledge is a global public good” (Stiglitz, 1999 p.310) and this is
why at least some education is publicly supplied. In so far as university is
linked to the production and transmission of knowledge, it is a candidate fit
to contribute an example. University education in Europe is regulated by
the Bologna Process, which started in 1999 with 29 participating countries,
and today counts 46 members. The system is based on the open method of
coordination, a new way of policy-making in the EU, mainly based on vol-
untary participation, benchmarking and peer review. Standardization has
introduced the Bachelor and Master structure of studies with the European
Credit Transfer &Accumulation System (ECTS), the National Qualification
Frameworks (NQF) for curricula, the Diploma supplement (DS) describing
the achievements and grades, as well as endeavours to implement best prac-
tices, such as Quality assurance, by soft pressure through naming and sham-
ing rather than inflicting sanctions and fines.
The implementation of the Bologna process on the part of countries that
had a different organization has meant not only re-organizational costs, but
also many difficulties among its stakeholders in the ways the new system was
explained and understood. The obvious advantage was to build up a more
homogeneous education system, easier to compare and assess across countries
and meant towards fostering student, and eventually labour, mobility. Ten
years later, the university system displays apparently the same structure
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but it seems to yield still very different results. The following figures, all
quoted from the latest Eurydice Report (2007) and describing the situation
of tertiary education, may help illustrate the point.
The first observation is that, while it is true that richer countries tend to
spend more per student in tertiary education than poorer countries, the ratio
varies considerably across them: given a similar income, Sweden spends much
more than the UK, and Finland more than Italy, while Ireland and Cyprus
with very different GDP levels spend nearly the same.
Figure 3: Yearly expenditure per student in tertiary education and per capita
GDP in 000 EUR at PPP
Source: Eurostat/Eurydice
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ratio (Figure 7). Again Turkey and the EU27 show similar figures (a little
more than 15 students per instructor) while those countries who previously
had shown a smaller-than-average expenditure, not surprisingly, now exhibit
a higher-than-average ratio. Yet, this can hardly be seen as an efficiency
indicator.
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Figure 8: Education participation per age and sex at ISCED 5-6 level in
2003/4
Source: Eurostat/Eurydice Figure B9 page 49. Red dots: female. White dots:
males. Blue line: total.
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No matter the recent move towards a more similar system following the
Bologna process, huge disparities in tertiary education still exist. A few
words on the Italian situation cannot refrain from underlying that in Italy
the expenditure per student in tertiary education is much lower than that
of countries with a comparable GDP, the expenditure for tertiary education
on GDP as well as on total public expenditure, whether or not only public,
is lower than EU average, while the student/instructor ratio is higher than
average. Nevertheless, this would be good news if one could claim that the
public funds employed in education are efficiently spent.
How do we measure such a basic concept as economic efficiency in the
provision of public goods and in the public production in general? In the
absence of a reliable price vector, other indicators have often been employed.
For education PISA scores are often used. For tertiary education many in-
dicators have been proposed and used, none of which unquestionably reveals
extraordinary effectiveness in providing tertiary education, nor prominent
efficiency in resource savings.
4 Conclusions
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References
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Kaul, I., Grunberg, I. Stern M.A. (eds.)(1999) Global Public Goods: In-
ternational Cooperation in the 21st Century, United Nations Development
Programme, Oxford University Press, New York.
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Stiglitz, J.E. (1995) The Theory of International Public Goods and the Archi-
tecture of International Organizations UN Background Paper n.7 New York.
Strange, S. (1996) The Retreat of the State: Diffusion of Power in the World
Economy Cambridge University Press, Cambridge, UK.
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