Public sector capacity matters, but what is it?

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Photo from Unsplash by Surya Prasad

By Rainer Kattel, Mariana Mazzucato, Rosie Collington, Fernando Fernandez-Monge, Iacopo Gronchi, Ruth Puttick

As governments turn increasingly to public sector innovations, challenges, missions and transformative policy initiatives, the need to understand and develop public sector capacities is ever more important. In IIPP’s project with Bloomberg Philanthropies to develop a Public Sector Capabilities Index, we propose to define public sector capacities through three inter-connected layers: state capacities, organisational capabilities, and dynamic capabilities of the public organisations.

The idea that governments should be able to design and deliver effective policies has existed ever since we had governments. A quick search in Google’s Ngram viewer shows that the use of state capacity in published books has experienced exponential growth since the late 1980s. It is, however, not a coincidence that focus on state and public sector capacities more broadly emerges in the shadow of new public management and neoliberal governance and policy reforms. Rather than understanding governance as a collaborative effort between all sectors, these reforms gave normative preference to business practices. Increasing focus on public sector capacity as a concept should thus be understood as an attempt to rebalance our understanding of how change happens in societies — through cross-sectoral co-creation — and as an effort to build the muscles in public organisations to work together to tackle socio-economic challenges.

We propose to define public sector capacities through three inter-connected layers: state capacities, organizational routines, and dynamic capabilities of the public organisations.

State capacity

The concept of state capacity emerged in writings on ‘developmental states’ from the mid-1980s onwards to describe the ability of national governments to “implement official goals, especially over the actual or potential opposition of powerful social groups or in the face of recalcitrant socioeconomic circumstances” (Skocpol). More generally, researchers using the concept have understood state capacity as resulting from the development of coherent bureaucratic institutions staffed by civil servants with relevant expertise to their roles, building on the ideas of Max Weber, and the political ‘autonomy’ of the state, or its ability to act without undue interference from other economic actors and interest groups. Both of these aspects require the ability to raise and deploy financial resources, including through taxation and investment.

Organisational routines

Organisational routines can be defined as the abilities that are necessary to activate the set of resources (including financial resources, tangible and intangible assets, and staff skills) that an organisation needs to achieve organisational goals. In public organisations, they are embedded within formal and informal routines or ‘tasks’, and can be grouped along six types that are required to perform policy functions: analytical, planning, coordination, evaluation, policy and participation. Generally, the focus of these capabilities is on the stable and durable working and performance of organisational functions. Yet, such relatively stable routines can be, and some argue should be, complemented by short-term adaptability and the introduction of new processes. This complementarity is achieved through a subset of organisational capabilities: dynamic capabilities.

Dynamic capabilites

Dynamic capabilities are specific abilities embedded in routines that enable organisations to adapt their resources, processes and skills in response to an evolving strategic environment.

The concept first emerged in the 1990s from the strategic management literature to identify “firm’s ability to integrate, build, and reconfigure internal and external competences to address rapidly changing environments” (Teece et al). In the last decade, it has been increasingly used to analyze public sector’s ability to adapt in the face of new and ever more complex societal challenges.

There is no established consensus on the number and content of public sector dynamic capabilities. We propose to typologise these capabilities as follows (cf. Spanó et al. 2024):

1. Sense-making (system awareness): i.e., the ability to scan and make sense of the environment where a public organisation operates to analyse opportunities and threats. This can be broken into ‘low order’ routines: i) strategic thinking to discern potential challenges; ii) analytical thinking to discern potential opportunities; iii) analytical thinking to discern political leverage and bargaining

2. Connecting (policy coordination): i.e., the ability to coordinate the connections, interfaces and linkages between the functions performed by a public organisation in its relation with the external environment. This can be broken into ‘low order’ routines: i) vertical coordination among leadership and frontline of the public organisation; ii) horizontal coordination among silos/departments in the public organisations; and iii) inter-organizational coordination between the public organisation and other relevant ones.

3. Seizing (action as experimentation): i.e., the ability to take advantage of emerging opportunities within a public organisation’s external environment. This can be broken into ‘low order’ routines: i) strategic investment and allocation of non-monetary resources; ii) decision-making procedures that avoid bias and welcome innovation; and iii) stakeholder management.

4. Shaping (transforming contexts): i.e., the ability to change a public organisation’s internal resources in view of changes in the external environment. This can be broken down into ‘low order’ routines: i) management and prioritisation of stable financial funds; ii) insourcing and outsourcing of goods, Human Resources, projects, and processes; iii) management, reskilling and reshaping of HRs.

5. Learning (organisational learning): i.e., the ability to control and manage how the routines developed by a public organisation are monitored, assessed, and ultimately discarded or institutionalised. This can be broken into ‘low-order’ routines: i) politico-administrative learning; ii) politico-economic learning; and iii) techno-economic learning.

The relationship between each of these dimensions is described in figure below.

Figure: State capacities, organisational routines and dynamic capabilities of the public sector

In sum, dynamic capabilities identify the set of specific abilities that enable the renewal of governments — more specifically, through the structuring and restructuring of their organisational routines and broader state capacity:

· In terms of capabilities, they support the development of routines that bolster governments’ ability to make the most of its available resources and achieve their desired goals.

· In terms of capacity, they support the identification, acquisition, or reallocation of the resources that bolster overnments’ ability to achieve their desired goals.

As a result, dynamic capabilities ensure a strong alignment between on the one hand, desired goals, and, on the other hand, available means (i.e., capabilities and capacity). Ultimately, we expect this alignment to produce stronger policy design, better policy implementation, and successful policy outcomes that can transform citizens’ wellbeing for better.

If you have insights to contribute or you would like to find out more about the development of the Public Sector Capabilities Index, please contact, Mia Tarp, M.Tarp@ucl.ac.uk.

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Changing how the state is imagined, practiced and evaluated to tackle societal challenges | Director: Mariana Mazzucato