The role of performance measurement system in building trust between central government, local government and its constituents

AuthorTjung Mei Ling
PositionPhD Candidate The Okuma School of Public Management Waseda University Tokyo, Japan
Pages225-239

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Introduction

This paper focuses on one of the current issue areas in public management - fiscal decentralization and performance measurement system. Although there are numerous studies on fiscal decentralization and performance measurement system in government institution, only a few studies done on the role of performance measurement in the decentralization in developing countries. This research paper uses the case study to study performance measurement.

Learning from past experience is one way to improve performance. However, governments do not necessarily possess the capacity to readily learn from their previous success and failures. Success story or even failure story could help to build and sharpen the capacity. The success story of performance measurement in a developed country might provide a reference for the developing countries to evaluate what went wrong and improve their performance in the future. On the other hand, the case study of some developing countries, even the failure story, would provide some insight for other countries not to repeat the same mistake. It would take time and effort, even some failure experiences before developing countries could successfully implement performance measurement system. Nevertheless, experience from other countries could help one country to shorten the time, minimize the effort and increase the successful rate in implementing performance measurement system.

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The paper is structured along the research questions. Most of the theory is embedded in the first section of the literature review. Next, we shortly describe the methodology of the research. The next section is going to discuss decentralization process and performance measurement of Indonesian government. The fourth section describes analysis of the case study through the decentralization time frame. Finally, there is a conclusion with some implications for practice and theory.

Literature review

Inability centralized planning in promoting adequate and equal development, together with financial difficulties caused by growing service demands and under-performing economies resulted in mounting budget deficit. It had led to emerging decentralization process worldwide (Smoke, 2006)

Decentralization is the transfer of authority, responsibilities and resources to lower levels of government (Dillinger, 1994). Recent decentralization reforms also substantially imply a transformation of accountability chains between central government, local governments, and the community, in which it crucially depends on the mechanism to replace central management with control over government affairs at the local level by the constituents (Blair, 2000; Manor, 1998; Crook and Manor, 2000, World Bank, 1995; Agrawal and Ribot, 1999). Otherwise, decentralization may in fact create incentives to distract public resources from its objective to satisfy individual interest.

The most important pre-condition for the success of decentralization is to establish local accountability through effective checks and balances, which implies that the use of local information (the region's performance information) is critically needed. During the early years of decentralization, lack of local accountability seems very common since there is lack of incentive or accountability pressures imposed on elected officials to implement policies in the public interest, due to lack of proper information, low education, or other reasons (Aziz, 2008).

Public sector reforms regularly incorporate a performance measurement element (Pollitt and Bouckaert, 2004). Public Sector reform focuses on how to balance resource with targets while considering cost efficiency, with performance measurement as its core. Performance measurement is intended to produce objective, relevant and precise performance information to answer the accountability demands, which would not only reduce the need for arbitrary judgment but also make it easier to scrutinize performance (Hatry, 1999). One of the main reasons for inefficient, ineffective and low productivity in public sector in the developing countries is lack of transparency and accountability in government organization, which could be caused by many reasons such as incompetent human capital, inadequate information technology/infrastructure, and vested political interest. The condition is aggravated by the fact that among the information available, there is still lack of relevant information for telling success from failure and for decision making. The information is by and large provided by the performance measurement system.

The existing theoretical and applied literature offers some arguments in favor of decentralization, which highlight the important of performance measurement. Decentralization is still enthusiastically praised as an effective remedy in the reform of governance systems, particularly in developing countries (Dillinger, 1994). A principle of good governance has the following characteristics of devolving centralization power with decentralization on the basis of subsidiarity1, public participation in every decision-making

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process at any level of government, efficient and effective government accounted transparently, and cooperation among government institutions and entities of community (Legowo, 2003). Some scholars argue that decentralization enhances the public sector's political accountability, legitimacy and responsiveness (Wagner, 1983; Oates, 1993). Seabright (1996) argues that accountability is considered more significant at the local level compared to the national level, since citizens could directly elect the governments based on their performance. Besley and Burgess (2001) suggest that both transparency and participation increase the political cost of not responding, thus creating incentives for the government to be more responsive. In this perspective performance measurement system could align incentives in a political system by providing relevant information, as Hatry (1999) states that a successful performance measurement system could be measured in terms of the quality of the discussion, the transparency of the information, the meaningfulness of that information to key stakeholders, and how it is used in the decision-making process.

Decentralization enhances the public sector's responsiveness, effectiveness, and efficiency in service delivery (Smoke, 2006). Furthermore, decentralization is assumed to enhance competition among jurisdictions to provide public services (Tiebout, 1956). In this perspective, performance measurement system could accommodate benchmarking process. However, some empirical evidences from developing countries such as Colombia, West Bengal, Brazil Eastern and Central Europe suggest the opposite result or at least achieve little in improving service delivery (Litvack, Ahmad, and Bird, 1998; Crook and Sverrisson, 1999; Mitlin, 2000). As some studies concluded, the implementation of any system in developing country government is more difficult compare to the one in the developed countries since they have to face the capacity constraints, limited technology, corruption and vested interest. The developing country government should get the basics rights, before attempting to introduce complex practices (Athukorala, 2003). In implementing decentralization and developing performance measurement system, it is important to consider the organizational insight and contextual factors. Instead of designing a one-size-fits-all system based on the best practices in the public sector, government should consider the differences between organizations (Dooren, 2005).

Nevertheless, most of the existing theoretical and empirical research has dealt with the impact of decentralization on the improvement of performance in local government. This paper will try to complement the unfinished research agenda on the varying patterns of local performance measurement systems to the new institutional environment created by decentralization policies, e.g. the role performance measurement in the relation between central government, local government and its constituents.

Methodology

This paper is based on the research conducted on performance measurement system of Indonesia government. The research approach adopted had a number of distinct stages. The data is collected through documentary sources, observation and interviews. The analysis is primarily based on a documentary data, which consist of laws, journals, articles, instruction manuals, financial and performance reports, and other documents regarding decentralization and performance measurement.

After reviewing the literature in the area to enable some prior expectations to be established, interviews were conducted on a totally informal and unstructured basis and not recorded verbatim. This process was chosen to allow respondents to talk freely and in an unconstrained manner to ensure that all issues. The interviews were conducted with top management within the Ministry of Finance of Indonesia, since it is argued that the Ministry

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of Finance is most concerned with the government reform and has been one of the change agents in the government.

In addition to the documentary study and interview, the writer has had the opportunity to participate and observe the meetings in the Ministry of Finance during a period of more than 3 years. The observations have, above all, helped to better understand and interpret the data from the documents.

Decentralization process and performance measurement system in Indonesia

Since the political reform took place in 1998, there has been an increasing demand for more transparency and accountability. People demanded government to be accountable for every...

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