Budgeting and planning are both administrative instruments for efficiency and effectiveness in policy development and implementation. They are expected to go in harmony; but the annularity of budgeting often collides with the long-range nature of planning, resulting in conflicts. In America, modern public budgeting was established to control public expenditure and to increase accountability of public officials. The idea of ‘‘planning’’
was somewhat avoided. It was the case from 1921 to the late 1940s. The first wave of performance budgeting in the 1950s and the PPBS in the 1960s were attempts to change the control-only orientation by adding elements of planning and management; but both reforms went off without much success. Since the 1980s the scene has changed quite a bit: some U.S.
state governments changed the name of their budget office into an ‘‘office of (strategic) planning and budget,’’ indicating that a change of perception had occurred and this trend is to spread further.
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5.1.1 Rationalist versus Empiricist Norms for Budgeting
In fact, planning is very significant because ‘‘even in a market economy, the budget presents the basic national economic plan’’ (Mikesell, 2003, 80).
The debate over planning in budgeting goes as far back as the history of executive budgeting in the United States — the planning perspective was one of the three fundamental conceptions underlying the execu- tive budget (Schick, 1971, 15). Nearly a century ago, Frederick Cleveland, one of the three founding fathers of public budgeting in the U.S., noted that
‘‘careful, understandable, responsible planning . . . has been conspicuously lacking in our federal, state and municipal government . . . The lack of planning has been an incident of
‘invisible’ or ‘irresponsible’ government, [because] the budget is a financial plan.’’ (1915, 17)
It was in fact an intended omission in the anti-(executive branch) government sentiment prevailing from the colonial days till the turn of the 20th century. To argue for the executive budget, Cleveland stated that
‘‘the only person is the chief executive. . . [who] can think in terms of the institution as a whole, who can be made responsible for leadership’’ (ibid.).
Cleveland carried the issue to the representative character of democratic government,
‘‘The constitutional or institutional purpose of a budget is to make the executive responsible and responsive to the people through their representatives and through the electorate . . . No plan can serve this purpose which comes from individual representatives any more than it could if it came from individual electors.’’ (1915, 18)
In the process of the executive budget movement, the planning orientation receded to the control orientation because the latter was more in accord with the then urgent demand to reduce public spending and curb corruption (Schick, 1971, 17). After about 20 years of the execu- tive budget into actual use, V.O. Key redrew academic attention to the fundamental issue of resource allocation, thereby indirectly back to planning:
‘‘[Though] planning agencies and professional planners have been more interested in the abstract problem of ascertaining the relative utility of public outlays than has any other group, they have not succeeded in formulating any convincing principles,
either descriptive or normative, concerning the allocation of public funds . . . Perhaps the approach toward the practical working out of the issue lies in the canalizing of decisions through the governmental machinery so as to place alternatives in juxtaposition and compel consideration of relative values.’’
(1940, 1138–42)
The rationalist approach to budgeting was presented more explicitly and comprehensively later by Verne Lewis (1952) and especially by Arthur Smithies (1955): public policies should be made clear and explicit, presented together with explicit alternative means on how to achieve those objectives. For this purpose, good coordination between revenue and expenditure should be made, with deliberate benefits and costs analysis for each outlay. In this regard, the whole policy-making should be unified and comprehensive.
Empiricists, however, opposed. To them, though the budget process with no planning is ‘‘fragmented’’ and ‘‘seemingly uncoordinated,’’ it is far better in allocating resources because it is less likely to neglect important political interests and thus easier technically and politically (Braybrooke and Lindblom, 1963; Wildavsky, 1964; Lindblom, 1965). Aaron Wildavsky had been blunt in pointing out that any search for a rational basis of such decision-making would be fruitless because such a task ‘‘is impossible to fulfill.’’ Reviewing literature since Key’s paper to 1960, Wildavsky summarized that ‘‘no progress has been made’’ (1961, 183). Allen Schick tackled the dilemma from the budget cycle. While budgeting must have neatly-cut start-and-end points for the fiscal year, planning cannot. Planning must operate on a ‘‘multi-year frame . . . to consider alternatives to the present course of action’’ (Schick, 1971, 209).
When the Planning-Programming-Budgeting reform was staged in the early 1960s, Allen Schick identified ‘‘strategic planning’’ along with
‘‘management control’’ and ‘‘operational control’’ as the three functions (alternatively ‘‘orientations’’) of budgeting. Schick defines ‘‘strategic planning’’ as
‘‘the process of deciding on objectives of the organization, on changes in these objectives, on the resources used to attain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these resources.’’ (1966, 244)
The tri-partite classification of budgetary roles later by Schick (1998) into aggregate control, allocative efficiency and operational efficiency also implicitly includes planning under allocative efficiency. The Bank’s more recent Medium-Term Expenditure Framework (MTEF) becomes more
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explicit about the importance of planning by extending the timeline from single year into the mid-term future.
Thus, it can be summarized that, despite theoretical differences that remain to be solved, the planning perspective has been almost universally recognized in government practice. In contrast to the United States, European countries have not been shy of endorsing the planning idea.
There have been many experiments with economic planning: Germany used economic regulation and rationing during the First World War (Tarschys, 2002, 85). Sweden and other northern European countries used national planning in recent decades. In poor developing countries, resource scarcity had always made it imperative to plan carefully the use of limited revenue and international aids (Caiden and Wildavsky, 1974).
5.1.2 Power Relationship in Resource Allocation
Since budgeting is to allocate limited resources between policy alternatives, we need to view the planning-budgeting relationship as the search for a fit between the two functions among key players in the allocation process.
First, planning comes in different types by its context of occurrence. Caiden and Wildavsky (1974) notice the striking gap between developing and developed countries. In resource-scarce and resource-rich environments, planning is done quite differently. In a poor country, planning is primarily for resource mobilization so that the limited resources can be fully exploited for utmost effectiveness (Tarschys, 2002, 85). This is especially so when a government is targeting quick policy impacts. Naomi and Wildavsky pointed out that ‘‘political leaders would be motivated to press harder for growth if they were more confident of reward for their sacrifices’’ (1974, vi). Because it is to gather scarce resources for con- centrated use, such planning is to deprive some sectors of the society of their due share. These sectors have to self-sacrifice in the process of development. Even in a country where people are disciplined and determined, resource mobilization often is done with coercion rather than voluntarily. The policy quickly generates impact, which, however, may not last long.
In a resource-rich environment, planning is more for coordination of priorities. Planning itself is comprehensive and done centrally, but without coercion. Often it is implemented through regulation or tax incentives for policy impacts on the economy. The expectation is that the policy will take some time to materialize; the effect is indirect but lasts long. Of the three cases in this chapter, China is of the first type, New York the second. Sunnyvale is of a sub-type in the second, where planning is to link resources to programs, to bridge service demands
to finances. It is long-term financial planning or, in the terminology of PPBS,programming.
Second, given that both planning and budgeting are necessary for allocative and technical efficiency in the use of resources, how to connect the two becomes the key issue. In the classic or conventional view, the budget is also a plan (although it is limited to the coming year only). The planning function of the budget in this sense is the short-term financial plan (Schick, 1966). In this regard, budgeting is financial planning. The two are indistinguishable. Issues emerge when planning is extended into the far future: as the plan extends beyond the boundary of the fiscal year (budget cycle), the link is broken between budgeting and planning. This disconnection involves power distribution at decision as well as adminis- tration levels.
At the decision level, power struggle occurs between the executive and the legislative branches. By the rationalist approach, planning is best done by the chief executive for comprehensiveness (against legislative pork barreling) and consistency over time, but the annual legislative review grants legislators the opportunity for constituency interests. When the two sides go into conflict, annual budgeting does not fit into the planning framework. Power distribution at the administrative level occurs between the budget office and the planning agency. Resource allocation is the traditional turf of the budget office; any encroachment may trigger reaction from budgeters. Planners, knowing that without jurisdiction over resource allocation, their plans will merely stay on the paper, will try to exert their influence onto allocation. This is how strife occurs between the two offices.
There are also technical issues between the two sides. First, planners tend to ignore the annual budget process. To them, the one-year span of the budget is negligible as a plan for future action (Walker, 1944, 97–8).
Budgeters may brush off any plan that goes too far because, once extending beyond the budget cycle, a plan serves little practical purpose, with revenue and expenditure forecasts being guesstimates at best, useless calculation exercise at worst. Second, annual budgets provide details that are closely linked to the next year that managers can feel and touch, things that no one can afford to ignore. In contrast, long-range plans seem to offer nothing concrete but visions and prospects that are detached from the current situation. No manager will feel any pain from oversight of a plan. Therefore, when the budget office asks agencies for next year’s estimates, the request will be handled carefully. When the data request comes from the planning agency for the coming ten years, agencies will complain because it grinds on their staff time and resources. Exhibit 1 displays in summary form some of the major differences in perspective between the two functions, some of which are also causes of non-cooperation by line agencies.
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5.1.3 Centralization-Decentralization Continuum
Planning as a comprehensive, long-range, global activity is best done top- down, in a centralized fashion, because the top executive has the best panoramic idea while agencies may have better ideas on efficiency. This brings in an additional dimension to the planning-budgeting relationship.
Centralization is a natural phenomenon, a management principle, always present to a greater or lesser extent (Fayol, 1916; Frederickson, 1980). It is positively correlated with hierarchy, which is a function of the size and structural complexity of organizations. The more hierarchical an organiza- tion is in structure, the more centralized its power-control mechanism tends to be. Thus, centralization is a phenomenon of degrees varying from case to case. Later scholars notice, as Fayol and other classical theorists did, that centralization as a method of management and administration should not be judged good or bad by itself, nor can it be adopted or discarded at the whim of managers or circumstances.
The core of centralization is power. Any useful analysis of centralization is necessarily an examination of the allocation of decision-making power in the organization and the methods of influence employed by the higher levels to affect the decisions at the lower levels (Simon, 1946). The objective to pursue is the optimum utilization of all faculties of the human factor in organizations (Fayol, 1916). The same pursuit of optimum utilization of the Exhibit 1 Factors leading to non-cooperation between budgeting and planning
Planning Budgeting
Staff Planners More accountants
Emphasis Broad purposes and
administrative problems of the programs being financed
Forms, procedures, accounts
Vision Forward-looking, 10–20 years Next year or two years only Substance Vague, detached from reality Detailed, specific
Tempo No time pressure to meet deadlines
Under deadlines in preparing annual budget
Reputation Planners and planning
agencies are ‘‘impractical’’ and
‘‘aloof from. . .politics and administration.’’
View appropriations
estimates restrictively, not in terms of desirable public policy.
‘‘Obstructionists not
facilitators’’ to policy makers and planners.
human factor in organizations gives rise to decentralization — dispersion of decision-making power, which is also a natural phenomenon, automatically assuming momentum with the increase of layers in the hierarchy of the organization. In other words, the bigger and the more complex an organi- zation is, the greater the need for, and momentum of, decentralization.
Centralization and decentralization do not necessarily mean a contra- diction but can be expressed as two ends of a scale, a continuum. It is a question of proportion, a matter of finding the optimum degree for the particular concern. The degree may vary constantly because the organiza- tion is changing over time in size and structure; and both the absolute and relative values of leaders and employees are also changing. The balance is to be sought according to circumstances, to the best satisfaction of the organizational goal, as well as the personal interests of leaders and public servants. This issue of optimum degree presents a challenge not only to top leaders, but also to managers at all levels. As a matter of optimum degree, centralization of proper powers is operable only by decentralizing some other powers, whereas decentralized powers must be under central over- sight (Hoover Commission Report, 1949) to ensure proper understanding and implementation of uniform policies and goals, so as not to turn out as anarchy or chaos. Scholars such as Power (1998) call this phenomenon an
‘‘irony’’ hidden in devolution: ‘‘the greater the amount of policy-making power being decentralized, the greater the accretion of centralized regulatory power is likely to be.’’ In our perspective, this so-called irony is nothing but truth directly stated. Donald Kettl, in his appraisal of the National Performance Review, also points out that oversight capacity must be strengthened (1994). To decentralize is to fix responsibility and maintain means of accountability. It is an element in most policy questions. As Paul Appleby says, ‘‘Whatever the decision is, adequate decentralization of responsibility for performance of the function agreed upon at the level agreed upon is essential to popular control’’ (1949, 162).
5.1.4 Analytical Framework
To summarize, long-range planning, as advocated by the rationalists, holds its position in public budgeting in both resource-rich and resource-scarce environments. The fit in the planning-budgeting relationship depends on several factors emphasized by the empiricists. An agreement between policy makers is the political basis to ensure long-range goals are established and accepted by both branches of government. Cooperation between the budget and planning offices is the administrative foundation for smooth operation of the fit. An optimum combination of centralized planning and oversight
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with decentralized managerial discretion and accountability structure will trigger initiative and enthusiasm of line agencies and managers into the integrated planning-budgeting process. The analysis of the three cases follows this analytical framework.