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Following is a speech (English only) by the Secretary for the Treasury, Miss Denise Yue, at the 17th Graduation Ceremony of the MBA Programme jointly offered by Northeast Louisiana University and Shue Yan College today (Saturday):
"DYNAMIC PUBLIC SECTOR REFORM"
Dr. Hu, Dr. Chung, Dr. Short, Distinguished Guests, Ladies & Gentlemen,
Introduction
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Thank you for the honour of inviting me to speak at today's Graduation Ceremony. In an increasingly knowledge-driven economy, Hong Kong has a great need for the sort of skills nurtured by your joint MBA programme. I applaud the vision of Northeast Louisiana University and Shue Yan College. The prospects of Hong Kong are brighter because of your efforts and investment. I congratulate the graduates of the 17th MBA Programme. You have chosen to enrich yourselves, you have worked hard, and you have mastered the tools of success. I look forward to watching you shine in your chosen careers.
When I thought about my speech to you today, it struck me that those of you heading for a civil service career might be interested to hear what I had to say. But those of you heading off to the private sector might wonder about the relevance of a speech from a bureaucrat. I hope this feeling may at least be moderated by the fact that I am at least a bureaucrat who deals with money - and lots of it! The Government's recurrent expenditure alone this year amounts to some $170 billion.
Relationship between public and private sectors
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But are private and public sectors such different and segregated entities? Is there nothing in common between them and nothing to share with each other? If that was the perception in the past, I believe we have now reached a more balanced view. It is now widely recognised that the public and private sectors have different strengths and weaknesses. They are very similar in some respects and very different in others. They have much to learn from each other, and there is much to be gained from effective partnership.
Impact of rapid change on both sectors
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This improved understanding flows partly from the rapid changes that have occurred for both sectors, and the way in which these changes have brought the two sectors closer together. I would illustrate with a few examples.
At one time governments were Goliaths while private companies were Davids insofar as size was concerned. With globalisation, over half of today's 100 largest economic units in the world are private companies rather than governments. The total annual sales revenue from the 10 largest multinational companies is one and a half times Mainland China's Gross Domestic Product.
Historically governments spoke little of customers and services. It was as if the population ought to be grateful for mediocre 'one size fits all' services delivered in a rather begrudging manner. Today an increasingly educated and well-travelled community demands from governments the same customer-oriented services it gets from private sector companies. Today the pressures put on governments by communities are no less strident than the demands voiced at a company's shareholder's meeting.
In the past governments were seen to administer while the private sector was about management. Such a comment raises interesting questions about the choice of the title of 'Masters in Business Administration', but I imagine that title is now too entrenched to undergo a change! Today the civil service can no longer just administer, it must manage as well, and manage the routine as well as the unexpected - be it a bird flu or an Asian economic crisis. It must, just like the private sector, cope with constant upheaval and changes of fortune and environment. It must deliver the best value from available resources in the face of the growing needs and rising expectations of the community.
All these changes have had a fundamental and profound impact on the challenges facing managers in the public sector. And this is what I wish to talk about this afternoon - the need for dynamic and continuous reform in the management and delivery of public services - often referred to as public sector reform.
International developments
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Reform of the public sector is clearly not unique to Hong Kong. Radical changes have been and continue to be made in governments in the USA, Canada, Australia, New Zealand, UK, Singapore, and so on. There are some common themes.
Governments are shifting their managers from controlling inputs and activities to managing the delivery of results for the community. As part of this, governments are engaging more closely with their communities to improve accountability and the fit between needs and services. There is also more awareness of the business community as important customer for government services. This has spawned effort on deregulation and cutting red tape.
Governments have also been reconsidering their role and the best way to achieve their objectives. They are concentrating on making sure things happen, as opposed to doing the things themselves. In the jargon of public sector reform, they are focusing on their purchaser role rather than their provider role. Governments recognise that the private and non-governmental sectors are sometimes in a better position to provide services to meet needs within a framework set by them.
Governments have adopted different institutional mechanisms for the delivery of services in order to accord with the needs of the 'market' - making form fit function rather than the other way round.
These changes have flowed through into the civil service. Governments are moving away from static civil service jobs, to a greater harnessing of capabilities in the private sector. Individuals in the public sector, just like their counterparts in the private sector, are broadening their skills to enhance their value and further their own careers. And governments are rewarding and promoting civil servants who manage risk, deliver results, rather than those who avoid mistakes.
Progress to date in Hong Kong
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Against the international trends in public sector reform, how are we doing in Hong Kong?
The starting point of our public sector reform is deciding what sort of Government we aim to be. We articulated it in 1995, when we launched the "Serving the Community" programme. In brief, we aim to be a government that fosters stability and prosperity, improves the quality of life for the whole community, cares for those who need help, upholds the rule of law and freedoms of the individual, and encourages every person to play his part in the community.
The articulation of this aim is accompanied by the prescription of a set of management principles for the civil service, including being accountable, living within our means, managing for performance, and developing our culture of service. These principles are in turn supported by values, including openness, leadership, efficiency, effectiveness, integrity and responsiveness.
This explicit statement has to be communicated to, and internalised, by the 190,000 strong civil service in Hong Kong. It needs to be hammered home over a continuous period of time until it becomes second nature to those in the civil service. Top level commitment to the messages in the statement is crucially important. The Chief Secretary for the Administration in particular has devoted considerable time and effort on this front. My fellow policy secretaries and I, together with heads of department, recognise that we have a vital role to play, both in terms of communicating the messages as well as putting them into practice ourselves.
Much of our early public sector reform effort was to improve standards of service within Government. This was in part because we could provide immediate benefit to the community and involve a large number of civil servants. In truth this focus was also partly due to the lack of political or economic drivers pushing us to address more extensive change. Finally, there was the undeniable priority of managing the political uncertainty around the transition.
We introduced Performance Pledges setting out the service standards that departments will provide to customers. Pledges typically cover such issues as how long it will take to consider an application, issue a licence or register a business activity. Pledges are a very good example of Government's approach to using public sector reform experience from overseas. We are very keen to look at what is going on elsewhere, and happy to borrow where appropriate. But we always consider how ideas need to be tailored to fit the Hong Kong context. In the case of Performance Pledges, we borrowed the idea of setting explicit service standards from the Citizens' Charter in the UK. But we went for a simpler approach that made it easier to get all departments on board in a short time. Pledges have been a great success in improving service standards, and driving home the message that the civil service's purpose in life is to provide a service to the community.
We delegated financial management responsibility through the setting up of Trading Funds. We took departments carrying out quasi-commercial activities that could recover their costs through charges, and moved them onto a different accounting basis. Examples include the Land and Companies Registries, the Post Office and the Electrical & Mechanical Services Department. Trading Fund managers are given complete freedom in how they spend money, provided they raise sufficient revenue to cover their costs. This gives them more flexibility to increase the volume or quality of service where the customer is able and willing to pay. This new accounting arrangement has led to a much more proactive management culture, and delivered improvements in efficiency.
The successful return of Hong Kong to China gave two significant boosts to our public sector reform agenda. First, it removed a major preoccupation and uncertainty for government. Second, the new Chief Executive emphasised the need for the Government to manage for results by results. To achieve this, we have published 37 policy objectives covering the whole of Government. Each objective clearly sets out the outcomes Government aims to deliver for the community, the practical steps we will take to improve the current situation, and targets to measure success at each level.
The Asian economic crisis arrived, and its effects were felt in Hong Kong, just as the policy objectives were being developed. The economic slowdown, linked to our budgetary guideline that the increase in public expenditure should not exceed the growth in Gross Domestic Product over a period of time, results in a lower rate of growth for government spending. Yet the community's needs continue to grow, and often faster when the economy is less strong. This underlines the need to achieve best value from baseline spending.
The Enhanced Productivity Programme, announced by the Chief Executive in his 1998 Policy Address, sets out to achieve both short-term quantified productivity gains and a lasting improvement in public sector productivity. They will be realised through reduced growth in baseline expenditure, reviews of major spending areas, changes in the management framework, and transforming front-line and support services. We will achieve all this without reducing services needed by the community and their quality.
It is important that the Enhanced Productivity Programme is seen in its proper context. We must deliver improved productivity in this difficult time for Hong Kong, but this is no knee-jerk reaction or change in direction. We will ensure that the productivity improvements build on, and support, our longer-term public sector reform agenda.
Journey ahead
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Let me come now to the journey ahead of us. The challenge ahead is securing a permanent change in management culture. To illustrate this point, let me caricature the traditional public sector culture. That culture focused on safety, control and avoiding errors. Rules and regulations were built up over time to tackle every possible abuse. Yet in making it difficult to abuse the public's money, these regulations made it difficult to manage resources effectively. The rule makers became obsessed with dictating how things should be done, with controlling inputs. The results or outputs were virtually ignored. The culture was also very incremental. Everything done last year was rolled forward to this year. Any new task was seen as justifying a bid for more resources, rather than prompting a rethink on priorities.
What must we do to change this? There are a number of elements to the management culture of the future. We need a proactive attitude focused on delivery for the community. We must do what we can to remove the roadblocks created by unnecessary or outdated rules and regulations. We need managers who find their way round problems. We need to unleash their creativity and entrepreneurial spirit so they can make the best use of the resources in 'their business' to achieve results and meet community needs. We must empower our managers, who are closest to the customer. In parallel we must engender a culture of robust and fair accountability in our managers.
We need managers who continually challenge their own use of resources and priorities to ensure that they are getting the most from every dollar. This attitude will create the headroom we must have to respond to new demands from the community by reallocation. Managers who runs to the centre for resources every time a new or improved service is identified have no place in a reformed public service.
But we must give our managers more flexibility by loosening our traditional control mechanisms. A good example of this is the one-line vote mechanism. The term one-line vote may sound strange to a non-government audience. All we really mean is giving the head of a department a single total budget, rather than separate budgets for pay, for temporary staff, for specialist supplies and equipment, for promotional activities, etc. A single total budget will obviate the need to seek permission to transfer funds from one pocket to another, while preserving overall control. We intend to apply the one-line vote mechanism to a handful of departments in the coming fiscal year. Subject to the outcome of the pilot exercise, we shall decide whether and if so how far the mechanism should be further extended.
Further down the road, we may give consideration to the possibility of multi-year provisional allocation of resources for, and permission to retain revenue collected by, appropriate bodies within the Government. In return, these entities will need to produce, and report against, quantified outputs statements and multi-year operational plans. If achievable, this would allow a more direct and accountable link between inputs and outputs.
By focusing on results we provide the opportunity for improved accountability to the community and to the Legislative Council on their behalf. Maintaining total control of expenditure is of course vital. Within this, however, the community is more interested in the results achieved than the detail of how resources are deployed.
Conclusion
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The agenda for public sector reform in the Hong Kong Special Administrative Region Government is challenging. The scope of the endeavour is certainly huge. The progress we have already achieved shows that it is not unmanageable. The prize is certainly worthwhile. Indeed, successful delivery of the next stage in public sector reform will be vital not only to meeting the rising needs and expectations of the community, but also to facilitating the economic competitiveness of Hong Kong, and to attaining our shared vision of Hong Kong as a leading economy in the region and the world. When we succeed for Hong Kong we succeed for each other and for ourselves.
Thank you for your attention.
End/Saturday, January 16, 1999
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