Economic Crisis and Public Administration

Abstract

The last global financial and economic crisis started in 2007–2008; it had serious effects on public sectors of OECD countries and was still affecting some of them when the COVID-19 pandemic began. Different streams of literature contribute to understanding the public management and governance challenges emerging from economic crises: the public administration literature on cutback management of the late 1970s and 1980s, the contemporary literature on managing austerity, and the more generic management literature on organizational decline. Although public administrations are reacting to the same global crisis, they are expected to adopt a variety of approaches when designing policy and managerial responses, including strategic approaches, across-the-board approaches (cheese-slicing or piecemeal incremental shifts), or rhetoric and inertia, avoiding real change and manipulating discursive frames. A strategic approach is based on systematic, selective, or targeted measures, and it includes different reactions to the crisis, such as a directive, hollow, or communitarian approach. In light of the different approaches available to public administrations for addressing an economic crisis, attention turns to the factors that determine such a choice. Public administrations’ responses to austerity are shaped by external and internal determinants. The external drivers make the crisis faced by each public administration longer or more severe and shape the way public managers react. External forces include economic and social features of the environment in which the public administration operates as well as national austerity policies. According to the literature, the harsher the fiscal stress, the more likely it is that targeted cuts will be adopted, instead of an across-the-board approach that doesn’t take into account the different levels of efficiency of public administrations or the strategic priority of different policy areas. Internal forces influencing crisis management approaches are financial and fiscal dimensions, such as financial autonomy (reliance on central government for revenue), spending autonomy and flexibility, degree of fiscal stress, and financial vulnerability. All these forces influence a proactive response to the crisis. Another key factor is leadership: the literature is excessively focused on incentives faced by political leaders, and few studies examine the role of administrative leadership. Finally, the crisis management approach matters in terms of impact; the literature developed after the 1970s and 2007–2008 global economic crises all agrees on this. Such a link, however, is difficult to assess. Strategic and longer-term approaches seem to favor the strengthening of trust, resilience, and avoidance of electoral costs, whereas shorter-term changes lower employee morale, create recruitment and retention problems, cause loss of managerial expertise, cause distraction from the core purpose of the service, and increase costs.