Some ideas on democratic administrations (updated)

There is a old “new” management wave roaring through the organisational straights again, and it is lapping up on the shores of public administrations. I’m talking about the workplace democracy model that was made famous by the success of Brazil based Semco in the 1990’s. The general idea is that reducing management in favor of direct decision making by the collaborators themselves will significantly increase performance without sacrificing efficiency, effectiveness and compliance. The Semco experiment has shown this model can work in a for profit environment, where the participants stand to gain from maximizing their own input as it translates directly in monetary values. The question is whether this model would also function in a public sector environment.

A more fundamental analysis of the uses and issues with such a model in a public sector environment is probably an excellent subject for a doctoral thesis. I have no data to support or reject the use of this model, other than some narratives which are, as evidence goes, rather limited. But there are a number of factors which we need to consider when implementing this type of model in a public sector environment. Let’s consider a few …

It’s not your money

Problems with workplace democracy in a for profit environment directly impacts the collaborators themselves, as it hits their personal bottom line. They have a direct, tangible incentive to correct problems because they stand to gain less if the issues are not resolved in a timely manner.
In a public sector environment, the money is not theirs, or not theirs directly. The tragedy of the commons problem will tend to occur, where key maintenance activities – I consider internal controls as maintenance activities – are neglected to get the most use out of the available means without considering longer term impacts.

Corruption and fraud

When a person actively abuses means from a for profit organisation, he harms the shareholders. These shareholders are those colleagues around him. These people have – under certain assumptions – a vested interest to ensure that the abuse does not take place. If the direct (financial and other) benefit of participation is significant, participants will automatically tend to curb free rider behavior of one or more players. You will have some misuse, but it should not, in principle, dominate.
However, the same Nash equilibrium will not necessarily be reached because the circumstances are fundamentally different. The pay-off for each of the participants in a public sector context is quite different from that in a for profit context. The risk of abuse of public means may be significantly higher.

Need for strategic audit

Some of the proponents of the workplace democracy idea would like to do away with control and audit, because self-regulating organisms regulate themselves. There would no longer be a need for such control and oversight systems. That may be taking that particular turn at too high a speed, however.
Self-regulating organisms either regulate themselves, or die. If they die, they die because their particular solution is not adequately adapted to the circumstances on which it was brought to bear. Hence, we need to ensure that the circumstances for workplace democracy in public sector are adapted. To me, and subject to significant further research, this would mean having adequate internal control systems as well as clear governance in place, including internal audit structures, to ensure that the taxpayer’s money is used in the most effective and efficient manner for the intended purposes.

Update – responsible autonomy

A good friend and reader mentioned the following article on wikipedia on responsible autonomy. What I really like about the article is that it does mention the need for “clearly defined boundaries at which external direction stops”.

If we consider this, the need for an independent and objective group of people, such as auditors, to assess both the relevance and the continued compliance with those boundaries becomes very obvious indeed.

Internal audit can assess whether circumstances validate for example an extension of the boundaries or, on the contrary, require a contraction of those boundaries. Factors need not only be internal control issues, but may also be related to external factors changing. These factors could be identified through risk analysis, for example.