12 November, 2010

World Bank, Chad Oil Project, and Resource Curse

Introduction

Chad is one of the poorest countries in the world with income per capita in 1985 only $120 per year (Day-Viaud & Joffe 1995, p. xvii). A consortium of oil companies discovered oil field with the reserves of 917 million barrels to be last until 2032. Considering the high risk investment in the country, the consortium will not sponsor this project unless the World Bank involved providing political risk protection (Esty 2006, pp. 1-5). This indicates that both the Chad government and the consortium are highly dependent on the Bank. This is a great opportunity for the Bank to control the loan contract negotiation by enforcing conditionality to ensure the oil windfall will bring welfare to Chadians.

Key issue

The key issue is how to create and maintain economic growth during and after the oil windfall. While oil mining will increase government revenues dramatically, many evidences suggest resources-abundance countries have stagnated in economic growth and underperform the resource-poor countries. This phenomenon called ‘resource curse’ (Auty 1993, p. 1; Sachs & Warner 1995, p. 2).

Chad has serious growth impediments both in economic and institution aspects. Chad has low capital investment and improvement, low productivity labours and lack of skill improvement opportunities, low technological input, lack of physical and human capital development, inconsistent economic policies, and ‘anti-development fiscal policy’ (Azevedo 1988, pp. 68-73).

Chad's political institution is not conducive for investment. The president has excessive power with ability to control the legislative and judicative (Kneib 2007, p. 32). This is a highly concentrated decision-making power which create uncertain and potentially volatile policy environment that bad for the welfare of citizens and investors (MacIntyre 2003, p. 29). Natural resources economy without good quality institution will create negative effect on growth (Sala-i-Martin & Subramanian 2003, p. 12).

Solution options

Option-1: Non-mining industries development

The Bank must direct its loan conditionality to support the non-mining sector. The sustainable development of natural resources economies lies in successful diversification into non-mining sector (Auty 1993, p. 258).

The oil revenue allocation and economic policy should be strictly designed to stimulate the non-mining sector. The revenue management plan (RMP) must give specific details regarding permissible expenditures to prioritize improvements on growth drivers; they are: saving and investment, physical and human capital, and technological improvement (Helpman 2004, pp. 10-12). For example, Chad government must develop transportation infrastructures, free basic and vocational education and job training to be linked and matched with the need of non-mining industries. Valuable incentives must be given to private sectors to improve their productivity through technological change such as free import tax for machineries. Incentives to start-up the non-mining firms such as temporary energy subsidy, efficient entry licence, and employee trainings support would attract domestic entrepreneurs and foreign direct investments.

The non-mining industries development should focus on areas where Chad has (potential) comparative advantages—for example from the availability of raw materials, labour's characteristic and geographical position—and relatively simple to begin.

While this option could create some results in a relatively short-term period, its success rely on the commitment of Chad leaders to implement the RMP and the economic policy. However, as economic improvement will increase the president's popularity, the president would have intrinsic motivation to support.

Option-2: Change the institutional architecture

The Bank must maximize the use of its strong power during the negotiation phase by forcing the Chad leaders to democratize its state's institution and promote good governance. The combination of democracy and good governance is a significant determinant of total factor productivity (Rivera-Batiz 1999, p. 32).

The conditionality must force the Chad leaders, particularly the president, to change their constitution to balance the power structure by creating constraint on executive government and improve the bureaucracy efficiency. This will improve the credibility of the government on ensuring the quality and certainty of its policies. This can be done, for example by, (a) strengthening the power of the National Assembly to be able to monitor the president and to have more power on legislation making, (b) making the Supreme Court independent from the president, (c) preventing the involvement of military forces in civil war and politics, and (d) promoting transparency and some initial measures on bureaucracy reform. However, the idea is not to swing from the severely concentrated to the severely dispersed, rather to make it in the middle of the range. For example, the president should still have a space to respond to policy challenges which require an immediate action. Country with political power structure located in the centre of the decision-making power ranges is unlikely to suffer from significant governance problems (MacIntyre 2003, p. 36).

Although this option has potential to improve Chad's government credibility, there is no significant constraint for the president to revoke the agreement. The president will still able to maintain his strong power after the agreement and bring back the old constitution. The political leaders renege on promises once the aid is delivered and their problems are resolved (Smith 2005, p. 566).

Proposal

By considering the following criteria, (a) time to see impact, and (b) resources availability, option-1 is the most plausible solution

Time to see impact is crucial to maintain the motivation and spirit of the Chadian on supporting the solutions. Option-1 would provide tangible and visible improvements faster than option-2 because option-1 will directly increase the quality of life through better livelihood by creating more jobs and other opportunities. If the improvement takes so long, or not really tangible and visible, people will get frustrated with the reform which lead to the increase of social and political problems, and end up with lower growth.

Resource availability is a precondition to make the solution work. Chad has resources to support option-1, at least for the start-up phase. For example, Chad's productivity on cotton production has been increasing from time to time (Azevedo 1998, p. 30). This is an excellent resource to start the textile industry serving the African region. By contrast, option-2 requires relatively strong human freedom—that is the individual freedom to effectively shape his/her own destiny (Sen 1999, p. 11)—which Chad is lack of. Chad's human development index in 1995 was only 0.324 which give the country a rank of 175 out of 182 countries (UNDP 2009). It is difficult to have strong institution without human freedom because most of individual tend to rely his/her life on other person rather than on the rule of law. Human freedom development takes more times because it is not just about skills to work in a factory. Therefore, option-2 is more potential to create and maintain economic growth during and after the oil windfall.

References

Auty, RM 1993, Sustaining development in mineral economies: the resource curse thesis, Routledge, London.

Azevedo, MJ 1998, Chad: a nation in search of its future, Westview Press, Boulder, Colo.

Day-Viaud, V & Joffe, G 1995, Chad, Clio Press, Oxford.

Esty, B 2006, The Chad-Cameroon petroleum development and pipeline project, Harvard Business School, MA.

Helpman, E 2004, The mystery of economic growth, Belknap Press of Harvard University Press, Cambridge, Mass.

Kneib, M 2006, Cultures of the world: Chad, Marshall Gavendish Benchmar, New York.

MacIntyre, AJ 1003, The power of institutions: political architecture and governance, Cornell University Press, Ithaca.

Rivera-Batiz, F 1999, 'Democracy, governance and economic growth: theory and evidence', paper presented at the conference: Democracy, Participation and Development, New York City, sponsored by the Program in Economic Policy Management at Columbia University, April 1999, viewed 29 October 2010,

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Sachs, JD & Warner, AM 1995, Natural resource abundance and economic growth, National Bureau of Economic Research, Cambridge, MA.

Sala-i-Martin, X & Subramanian, A 2003, Addressing the natural resource curse: an illustration from Nigeria, National Bureau of Economic Research, Cambridge, MA.

Sen, A 1999, Development as freedom, Knopf, New York.

Smith, A 2005, 'Why international organizations will continue to fail their development goals', Perspectives on Politics, vol. 3, no. 3, pp. 565-567.

UNDP 2009, 'Human development index trends', Human Development Reports, viewed 30 October 2010,

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Transformational leadership

Introduction
This is a review of a paper by Janet Denhardt and Kelly Campbell titled 'the roles of democratic values in transformational leadership' published in the Administration & Society journal, volume 38, year 2006. The paper starts with reviewing the development of transformational leadership theory. The review compares the original concept of transformational leadership as set forth in Burns (1978) with the recent concepts that mostly influenced by Bass (1985). Denhardt and Campbell argue that the recent transformational leadership concept narrowed to ‘transformational as change’ which create problematic in its application in public sector (2006, p. 559). This led them to build an alternative model according to the Burns’s conception of transformational leadership as moral elevation and combined with normative public administration theories which include democratic values (Denhardt & Campbell 2006, pp. 567-568). I will argue that the public transformational leadership model introduced by the authors could: (a) contribute to a better public management, and (b) more relevant to a complex situation. At the end, as I learn from the model, I will suggest that effective leaders need strong relations and changes behaviours orientation, in addition to moderately strong task-oriented behaviours.

Contribute to a better public management
The paper emphasizes the importance of addressing the democratic values and, therefore, strengthening the role of citizen and the assertion of public interest (Denhardt & Campbell 2006, p. 562). This suggestion could overcome the weakness of the market-oriented government approach that being promoted through the new public management (NPM).
New public management could fail to create public value because it tends to leave some people behind the development. While NPM improve the efficiency and performance-focus of public organizations (OECD 2005, p. 10), it has resulted in an emergence of a "new poor" in some developing countries (Batley & Larbi 2004, cited in Haque 2007, p. 182). Efficiency and performance are two important NPM's doctrine that could be achieved, for example, by imposing the performance based finance management. However, the performance focus in NPM heavily associated with “service user” or “customer” as contrast to “citizen” which cover ‘unwilling customers’ (Borins 2002, p. 191). That is because citizens play a multi-function role in society. NPM approach could exclude non-customer citizens (such as tax payers who are not directly benefit by public service) from the attention of a public sector leader. This shortcomings could be sustained because NPM 'hinders any return to substantive democracy and limits the degree to which citizens can meaningfully affect policy and administration’ (Box et al. 2001, p. 613).
Democratic values are essential for public transformational leadership in the process of creating public value. In their search for performance, public sector leaders seek for public value rather than narrowing at 'customer' value. To achieve public value, they cannot just rely on the feasibility of their operation and administration, they must be legitimate and politically sustainable (Moore 1995, p. 71). The legitimacy and the operational capability can be simultaneously achieved if public leaders apply a 'substantive democracy'; that is the democracy which involves the revitalization of the role of public administrator and citizen in shaping the future (Box et al. 2001, p. 611). Democracy in internal would empower the public servants, while democracy in external would empower as well as gaining legitimacy from the citizens.

More relevant to a complex situation
In a complex situation, public leaders could not focus only on managing their administration. Indonesian public sector is a good example for a complex situation. Indonesian government is strong in terms of its authority power given by the constitution where government almost could or should do anything related to people’s life. However, Indonesian government has limited resources to implement its wide-range authority. For example, the ratio of tax revenue to GDP was only 9.9 per cent compared to an average of 14.0 per cent among non-OECD countries in Asia (IMF 2008, p. 11). This situation forces Indonesian government to encourage private sectors to contribute to public services including social welfare program. In this situation, public leaders should manage different stakeholders with different interests and different level of power, and also to ensure that the powerless have opportunity to contribute to the process of creating public value.
Public transformational leadership model introduced by the authors is more relevant in the complex situation. The authors argue that transformational leadership is not only about creating a change, but also to ensure that the process of change should involve moral elevation; that is a normative model of public leadership based on democratic values, citizenship, and service in the public interest (Denhardt & Campbell 2006, p. 558). The model will force the public leaders to create changes in participatory way by involving all important stakeholders. The process of changes is equally, if not more, important than the change itself. This will create a sustainable change in the complex situation because all stakeholders own the idea and the result which will make them committed to maintain and continuously improve the change in the future. In “transformation as change” model, by contrast, the leader would just focus on the effectiveness and efficiency of the change which can be done through unilateral way, but the impact would not sustainable.

Overall learning from the article
This paper shows me the comparison of two different model of transformational leadership; those are the ‘transformation as change’ and ‘transformation as moral elevation’. The two categories could be related to the current discussion about public sector model which can be contrasted to “market-oriented” and “public value-oriented”. The moral elevation model which preferred more by the authors has more potential to work to create public value in a complex situation.
The comparison of the two models generates idea about leadership behaviours for effective leaders in a complex situation. Yukl introduces a ‘metacategories’ of leadership behaviours into three dimensions: they are: task-oriented, relations-oriented, and changes-oriented behaviours (2010, pp. 117-130). As I learn from the paper, I argue that the moral elevation model of public transformational leadership requires strong relations-oriented and changes-oriented behaviours, and moderately strong need for task-oriented behaviours. This is because the process of change equally, if not more, important than the change itself. My argument is in line with Yukl’s argument on traits characteristic of effective manager; that is high socialized power orientation, a moderately strong need for achievement, and a relatively weaker need for affiliation (Yukl 2010, p. 74).

References

Bass, BM 1985, Leadership and performance beyond expectations, Free Press, New York.

Borins, S 2002, 'New public management, North American style', in K. McLaughilin, S.P. Osborne, & E. Ferlie (eds), New Public Management: Current Trends and Future Prospects, Routledge, London, pp. 181-194.

Box, RC, Marshall, GS, Reed, BJ & Reed, CM 2001, ‘New public management and substantive democracy’, Public Administration Review, vol. 61, no. 5, pp. 608-619.

Burns, JM 1978, Leadership, Harper & Row, New York.

Denhardt, JV & Campbell, KB 2006, ‘The role of democratic values in transformational leadership’, Administration & Society, vol. 38, pp. 556-572.

Haque, MS 2007, 'Revisiting the new public management', Review of The changing role of government: the reform of public services in developing countries by R. Batley and G. Larbi, Public Administration Review, Jan-Feb, pp. 179-182

IMF 2008, 'Tax administration reform and fiscal adjustment: the case of Indonesia (2001-07)', IMF Working Paper WP/08/129, International Monetary Fund, Washington, D.C., viewed 10 October 2010,
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Moore, MH 1995, Creating public value: strategic management in government, Harvard University Press, Cambridge, Mass.

OECD 2005, Modernising government: the way forward, Organisation for Economic Co-operation and Development, Paris.

Yukl, GA 2010, Leadership in organizations, 7th edn, Pearson, Upper Saddle River, N.J.


Managing Government Performance in a Changing Environment

Introduction

Any organization exists because society needs its service function. Therefore, an organization must regularly reshape its system to adjust to the continuously changing society. Governments, similar to other organizations, are organs of society (Drucker 1973, p. 39). Although society's expectation in general is to have wellness, perception of wellness is changing over time. And factors influencing wellness are also changing. If the government wants to perform, which means fulfilling society's expectation, its organization must be open to changes to be adaptive to its environment. The performance supports the continuity, which is important to balance the change. Innovation is required to make the resources work efficient in achieving high performance. Indeed, innovation creates resources from something valueless (Drucker 1993, p. 30), it is the one that makes one society more productive and richer than another (Helpman 2004, pp.36-46). Peter Drucker, in many of his works, emphasized the importance of well performing government. This paper will argue that organization can perform in changing society if they manage their capacity to be adaptive to the changing organization's environment.
Government Organization

Peter Drucker had many critics. He argues that government organizations, in general, lack performance, are inefficient and ineffective, budget rather than performance oriented, are managed by less capable people (compared to the private sector), and are unclear in result orientation (Drucker 1973, pp. 137-147; Drucker 1988, pp. 131-141; Drucker 1992, pp. 212-218). He applied that argument not only to developing countries, but also developed countries particularly the United States where he spent most of his life. He believes that government is an organ of society, and should not be an end in themselves. The objectives and results of government must lie in its customer in society, outside of organization (Drucker 1973, p. 158; Drucker 1988, pp. 56-57; Drucker 1999, p. 29;38).

Elements of Institutional Capacity
Every government has functions to be delivered to society and its environment. It is the institutional capacity which enables government organizations to perform. As society and the environment are continuously changing, government must manage their capacity to be adaptive. Managing capacity requires an understanding of capacity elements. Capacity elements are factors, within and outside organizations, which work interactively to build the institutional capacity of the organization. Institutional capacity is more than personnel capacity. A government with high skill and knowledge of people will not be able to perform its function without stakeholder support and effective leadership. That means capacity elements must extend beyond skill and knowledge of people. This essay will suggest seven capacity elements; they are: stakeholder support, strategic cycle, job and organization structure, work procedures, facilities and information systems, competency and motivation of people, and leadership.

Stakeholder support
Stakeholders' needs, preferences, and priorities are the basis of how government should adapt their capacity. Changes in perception, mood, and meaning are a source of innovation (Drucker 1993, p. 35). Similar to an organism, government interacts with the stakeholders in its environments, who can influence or are influenced by the achievement of government objectives (Freeman 1984, p. 46). In order to ensure the achievement of its objective, government must define who its stakeholders are. Government's stakeholders are not limited to citizens although citizens are legitimate stakeholders who play a multifunction role in society, either as the owner or the customer of the state. Those who have no legitimacy but hold power and possess urgency are also stakeholders with a range of different qualities (Mitchell et al. 1997, pp. 854-874). Ignoring any stakeholder would result in government's failure to achieve their objectives. Government must manage each of its stakeholders in a correct manner according to their interests and potential impact on the objective's achievement. Therefore, customer focus does not mean the customer is the only concern. Without support from all stakeholders, with various importance levels depending on their characteristics, the objective of government will never be achieved.

Strategic cycle
Strategy defines the 'theory of business' of government—such as customers and customer expectations, objectives, and results—and plans to convert that into performance (Drucker 1999, p. 43; Drucker 1973, p. 122). Defining 'theory of business' is important to identify the scope of the government business. This is because government should not do everything. Some public issues can be done better by other institutions in society. The main role of government is to 'govern', not to do. Some functions can be better implemented if 'decentralized' to other institution (Drucker 1992, p. 233-5).

Once the scope is clarified, the next step is to develop an action plan (as part of the strategic plan). That will determine programs and services necessary to achieve government's objectives and results. Results must be about change, and describe how government wants a better society in the future. Result formulation must consider opportunities to innovate. Drucker mentions seven sources for innovative opportunity, they are: the unexpected, the incongruity, the process need, changes in industry or market structure, changes in demographics, changes in perception, mood, and meaning, and change in knowledge (1993, p. 35). In order to make a judgment about results achievement, the strategic plan must be equipped with a set of performance indicators. These indicators should help reveal the extent of achievement (effectiveness) and also show how many resources will be used when delivering the program or services (efficiency) (Palfrey et al. 1992, p. 86; Department of Treasury and Finance 2003, pp. 9-10). Organizations can be efficient but do the wrong thing. They can also be effective but do things incorrectly resulting in cost (Drucker 1988, p. 44). Drucker suggested that a strategic plan should not avoid risk because higher risk means higher performance (Drucker 1973, p. 125). However, it is important to identify the risks and to have a plan to overcome these risks. Another important element of the strategy is a budget plan. The budget plan must be integrated and fully coordinated with the action plan. Similarly, the action plan must adjust to financial objectives, such as target on fiscal deficit/surplus.

There is no fixed plan for the future that will be valid forever. Any strategic plan must be treated as an adaptive plan. Regular evaluation and re-planning is necessary. Drucker argues that service institutions need a discipline of 'planned obsolescence' and 'planned abandonment' (1988, p. 149). Therefore the performance indicators are important, and this is why this essay calls the capacity element 'strategic cycle' rather than strategic package.

Job and organization structure
The structure of jobs and organization must fully support the strategy. Strategy follow mission and structure follow strategy (Drucker 1999, p. 8). When a strategy has been defined, organization divisions, job titles, and number of jobs can be identified. A good design of jobs and divisions will provide the correct size organization; not too big and not too small. Government organizations must develop their own structure according to their strategy and conditions to be effective and efficient. Effectiveness could be achieved if all required tasks are allocated to all jobs. Efficient structure is indicated by clear job description and optimum work load in all positions. This will also ensure that each job is unique and no unnecessary task overlap.

The concern on effectiveness and efficiency also applies to divisions. Division is required to decentralize the management within an organization. This is useful to implement a number of different services or functions to produce different outputs or products. Management should be decentralized into autonomous units such as departments or agencies. This is what Drucker calls 'federal decentralization' (1954, p. 207). Decentralization helps organizations shorten the decision making span and reduce the possibility of miscommunication. It will also eliminate resistance from employees and lower level managers over management decisions. Decentralization improves effectiveness through shaping organization resources to accomplish particular tasks and achieve particular results within autonomous units. Therefore, each unit must be responsible and authorized to manage their resources, design and implement their strategy, and also accountable to achieve their results as contribution to the total government. The right size and appropriate description of jobs and divisions of a government organization determines the success of its strategy implementation.

Because the strategy is subject to change, job and organization structure must be adaptive. There is no one right organization structure (Drucker 1999, p. 11). It is necessary to conduct regular evaluations in order to fully support the organization's changing strategy. However, it is also important to guarantee certainty to a certain extent to allow people to have good orientation about their organization. This is because change and continuity need to be balanced (Drucker 1999, pp. 90-93).

Work procedures
Any government organization, as a service institution, needs to clarify and publish the work procedure of all services they deliver. Procedure clarification and transparency is not only important for creating effectiveness and efficiency, but also important to disseminate the service information as the basic right of customers. Each particular service must be equipped with standard operating procedures (SoP). SoP determines the process chain within the service. One link is one unit of processing. It describes how output is produced from input. Each link involves materials, equipment, people, and other resources over a certain time period. Inputs are delivered by people from the previous link, while outputs are delivered to people in the next link.
The people who provide inputs and receive outputs could be from inside or outside the organization. This process will clarify who to coordinate with, for what and when. The end output is the result of the autonomous division and will contribute to the overall government objectives.
By capturing the work process in SoP, each government division could assess their efficiency or productivity by calculating how much output they get per input, or how much output per time or per employee. This is also a way to create service delivery standards such as cost, time and quality of service. Governments from different states who deliver identical services could compare their efficiency and effectiveness. This is a chance to create competition among service institution which could boost their innovation. For example, in business permit services, all 584 local governments in Indonesia could compete on the time needed to process one business permit. Government should regularly update their procedures with new knowledge and technology (innovation) to improve efficiency. This means procedure should not make government organization static—by limiting themselves only to follow the procedure (Drucker 1992, p. 231). Procedure must be treated as a tool to develop sustainable innovation.

Facilities and information system
Without support of appropriate facilities, even organizations with the most knowledgeable peoples may achieve results, but certainly will not be efficient. Therefore, it is important for any organization to catch up with the latest technology which can boost their efficiency. Otherwise the organization must find their own innovation to compete with others who better equipped. The reason for being equipped is to be efficient, nothing more than that. Worker with facilities and equipment must prove that they are able to produce results with appropriate quality faster than those who do without. Facilities must be provided appropriately. For example, it is not necessary for the boss to be equipped with an expensive computer suitable for graphic design when she/he only has a need to monitor numerical data and create written reports. Conversely, the cost of providing overhead projectors to teachers which can be significantly help students understand the lecture, should not be a deterrent when compared to length of teaching time would suitable enhancing equipment. The challenge here is to be able to identify appropriate facilities for each job.

Information systems (IS) are a type of work facility. IS enables government organizations to interact well both within their organization and with stakeholders outside. This facility is a necessary requirement to maintain the adaptability of government organization against the changing environment. 'Continuous work on information' is a requirement 'to balance the changes and the continuity' (Drucker 1999, p. 91). Moreover, IS also helps government to decentralize their functions (Dean et al. 1992, p. 220). IS is not just a facility, it is a compulsory organ of government organization.

Competency and motivation of people
Good government requires more than personnel management. Government will only perform if people in the organization are recognized as human resources. They must be seen as assets rather than liabilities. That is what Drucker calls "people management" (Drucker 1973, p. 108). Among other things in people management, managing people's competency and motivation is critical to an organization's performance. Competency is about ability which consists of knowledge, skill and attitude. Motivation enables that ability to work and perform functions.

The aim of managing the competency of people is to ensure that all jobs that are required in order to execute the strategy are filled by the right people. This involves performance and competence evaluation, competency development, and promotion. Recruitment must be well-planned. The manager must know the required qualifications of people for a particular
job. Performance and competence evaluation will identify who is performing and who is not and what the issues are. When there are competency issues, the manager could improve the competency or replace the person by moving the person to a more suitable job. The purpose of organization in people management is to utilize the strength of the people and to make their weakness not relevant (Drucker 1973, p. 307).

Government has a unique characteristic compared to private institutions in terms of managing motivation. Unlike the private sector whose income is derived from the willingness of customers to purchase their products or services, governments gain their revenue mainly from taxes. They are a budget-based institution (Drucker 1988, p. 135). This is a challenge to make them performed. The challenge is how to create motivation in institutional and personnel level. At institutional level, a stable open society and democratic government would help to create motivation. This will enable smooth but critical interaction between society and government. Bad policy will be criticized and good policy will be supported. Motivation at institutional level influences the motivation at individual level. However, that is mainly at upper managerial level. Creating motivation in lower managerial levels, and in the front line employees, is a tricky thing. 'Carrot and stick' is not only insufficient but can be dangerous. It is insufficient because people are not motivated only by reward and punishment, but also by values and culture. It could be dangerous because for knowledge employees, the fear from the 'stick' becomes a demotivator (Drucker 1973, p. 176). 'Carrot' (reward) is important, but defining the most valuable and lowest at cost reward is even more important. This could be different things for different people. Creating motivation for government institution and public servants is not only about increasing salary; it must also be managed in a systemic approach which includes organization culture, leadership, quality and openness of society, and transparency of government.

Leadership
Good leadership will make all capacity elements and their interaction work to build institutional capacity. The focus of leadership is performance of function which is intended to overcome any of society's major issues. Therefore, managers require specific skills such as the ability to communicate within the organization, make decisions under conditions of uncertainty, and undertake strategic planning (Drucker 1973, p. 17). Communication skills are essential in leadership to motivate people to achieve their results. It is also important to gain stakeholders support particularly when the organization needs resources and political support from outside. Managers must also be able to make decisions in a changing environment. Managers must lead to find opportunities for innovation from symptoms assessed within and outside organization (Drucker 1993, pp. 30-129).

Good government leaders will not spend all their time behind the desk, assessing finance and writing report. Controlling the organization's resources is important, that is indeed the manager's responsibility. However, managing performance is more than that. Leaders must divide themselves between organization and society. This is how they will be able to identify the 'right changes' (Drucker 1999, p. 73).

Conclusion
'The only thing that is constant is change'. That expression was written about 100 years before Plato (thedailyphilosopher n.d.). All government organizations are in the middle of a changing environment and changing society. However, at the same time, they require continuity which will be achieved if the government performs well. Managing performance in a changing environment requires understanding of capacity elements; that is all the factors which interact to build institutional capacity. Innovation is essential in most of the elements to improve the value of resources which are often limited, and also to exploit any opportunities which often not seem important for common people. This essay has discussed seven institutional capacity elements. Any government organization which systematically employs these elements and ensures their effectiveness will be able to manage performance in a continuously changing environment and society.

References
Dean, JW, Se Joon Yoon & Susman, GI 1992, 'Advanced manufacturing technology and organization structure: empowerment or subordination?', Organization Science, vol. 3, no. 2, pp. 203-229.
Drucker, PF 1954, The practice of management, Harper & Brothers Publishers, New York.
—— 1973, Management: tasks, responsibilities, practices, Heinemann, London.
—— 1988, Management: tasks, responsibilities, practices, Butterworth-Heinemann, London.
—— 1992, The age of discontinuity: guidelines to our changing society, Transaction Publisher, New Brunswick.
—— 1993, Innovation and entrepreneurship: practice and principles, 1st edn, Harper Business, New York.
—— 1999, Management challenges for the 21st century, Butterworth-Heinemann, Oxford.
Department of Treasury and Finance 2003, Outcome based management: guideline for use in the Western Australian public sector, Department of Treasury and Finance, Government of Western Australia, Perth.
Freeman, RE 1984, Strategic management: a stakeholder approach, Pitman, Boston.
Helpman, E 2004, The mystery of economic growth, Belknap Press of Harvard University Press, Cambridge, Mass.
Mitchell, RK, Agle, BR & Wood, DJ 1997, 'Toward a theory of stakeholder identification and salience: defining the principle of who and what really counts', The Academy of Management Review, vol. 22, no. 4, pp. 853-886.
Palfrey, C 1992, Policy evaluation in the public sector: approaches and methods, Avebury, Aldershot, Hants, England.
Thedailyphilosopher n.d., Essay: the only thing that is constant is change, viewed 3 August 2010,
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Indonesia and Trans-Boundary Haze

Introduction

Transboundary haze pollution (THP) in Southeast Asia—which mainly caused by Indonesia—is a regional recurring environmental problem (Qadri 2001, p. 54; Orangutanfoundation 2010). The THP can be resolved if there is support and cooperation of international stakeholders. Members of Association of Southeast Asian Nations (ASEAN) countries signed the 2002 Agreement on Transboundary Haze Pollution treaty ('The Treaty'). One of the principles in the treaty is to get support and cooperation among key stakeholders in domestic and international level (ASEAN Secretariat 2002, a. 3)

Key Issue

The key issue to end this recurring problem is how to create incentive for international stakeholders to cooperate and support Indonesia. The common cause of transnational problem is self-interested pursuits (Sandler 1997, p. 2). Nevertheless, 'cooperative solution' is still possible to be reached even if the stakeholders assumed to have individually rational behaviour (Finus 2001, p. 11). The key determinant to make the transnational public good achieved is the proper incentive for the individual contributors (Sandler 2004, p. 98). Indeed, the main reason of why Indonesia would not ratify the treaty is the lack of economic incentive which associated with the inadequacy of resources at the local level to address the challenges of haze pollutions (Tacconi et al. 2008, pp. 6-9). The adequate resources are very important for Indonesia to create alternative solutions for local stakeholders; for example: alternative technology for oil palm and logging companies in doing land clearing, or to provide alternative livelihood for local people.

The proper incentive for international stakeholders is to have good quality air and environment (collective good) and/or to meet their international commitment. This will never be achieved unless all parties cooperate. The cooperation is important because Indonesia needs economic resources from international stakeholders, while international stakeholders need Indonesian commitment. This meets characteristic of 'assurance game'; that is the benefit will only flow if both parties contribute to the cooperation (Sandler 1997, p. 35; Finus 2001, p. 32).

Solution options

Option 1: Isolate the cooperation within ASEAN

Indonesia should isolate the cooperation within ASEAN. This is because the affected countries of THP are ASEAN countries (Quah 2002, p. 429). The most effective way to resolve transboundary environmental problem such as THP is by involving the affecting and affected countries (Uitto & Duda 2002, p. 365). Indonesian leadership is important because Indonesia plays a dominant role both in ASEAN as well as in the THP (Tay 2002, p. 61). Leadership is a key to get an optimal outcome in an 'assurance game' (Sandler 2004, p. 27).

Indonesia must provide commitment to ratify and implement the treaty. This will send a strong signal of incentive for other ASEAN countries which will attract them to cooperate. In return, Indonesia should demand ASEAN members to contribute to the Transboundary Haze Control Fund (Haze-Fund) that has been initiated since 2007 (ASEAN Secretariat 2007).

Although the Haze-Fund is potential as resources for alternative solutions for Indonesian domestic stakeholders, it is difficult to get sufficient amount of it. As per October 2008, the ASEAN members were still struggling to achieve their initial target of $500,000 (ASEAN Secretariat 2008). That target is far from sufficient for alternative solutions of THP problem which involve large economic activities.

Option 2: Enlarge the cooperation to global level

Indonesia must relate the haze issue to the climate change. This will enlarge the scope of the cooperation into the global level. Effective collective action is more likely to be achieved by addressing global exigencies simultaneously (Sandler 1997, p. 19; Finus 2001, p. 2). Besides being a major contributor to the THP, the 1997 Indonesian peat-land fire released carbon to the atmosphere which estimated equivalent to 13-40 per cent of the mean annual global carbon emissions from fossil fuels (Page et al. 2002, p. 61). Addressing haze production from the peat-land fire will create global benefit in mitigating climate change (Tacconi et al. 2008, p. 2). This is a window to get more resources from global partnership through Reducing Emissions from Deforestation and Degradation (REDD) scheme.

The incentive for international stakeholders is the possibility to use the partnership as a source of offsets to meet their emission reduction target as promised in the Kyoto Protocol (Fogarty & Creagh 2010). In fact, there are two global partnerships that have been running so far; they are: cooperation with Australia on Kalimantan Forests Climate Partnership with a value of $30 million (Australian Government 2009), and cooperation with Norway on Norway-Indonesia REDD-Plus Parnership with a value of $1 billion (Norway Embassy-Jakarta 2010). The ability to provide alternative solutions allows Indonesian government to gain support from domestic stakeholders to implement the treaty.

While this option can create strong incentive for international stakeholders and support of domestic stakeholders to implement the treaty, it depends a lot on the global economic stability. The stability of global economy enables industrialized countries to contribute to the global emission reduction efforts.

Proposal

By applying the following criteria: (a) the cost to Indonesia, and (b) the perception of responsibility, option-2 is the most plausible one.

The cost to Indonesia is an important criterion because Indonesia needs fund for its development and economic activities to create jobs. The best THP solution is the one that create little economic cost to Indonesia. Option-1 is likely will end up with low amount of Haze-Fund. If Indonesia committed to apply the treaty, Indonesia must pay most of the costs. And if government decides to close oil palm and logging companies who unable to find solutions to their land clearing but burning (because of a lack of alternative solution such as appropriate technology), Indonesian economy will suffer. This is a disincentive for domestic stakeholders to support the treaty. Option-2 is more promising because it could attract more resources from international stakeholders which enable Indonesian government to find more alternatives for solutions to manage the interests of domestic stakeholders.

The perception of responsibility drives the incentive to cooperate which is central to achieve optimal outcome in an assurance game. In the THP issue frame (option-1), ASEAN countries (other than Indonesia) do not have strong responsibility of the issue because THP is a unilateral externality where Indonesia is the the main cause. By contrast, in climate change issue frame (option-2), almost all countries contribute to the greenhouse gas emissions (multilateral externality) where the industrialized countries are among the main cause. This explains why ASEAN countries have weak incentive to cooperate (option-1), while industrialized countries at global level have a stronger incentive (option-2) although both of them have similar interest to the collective good. Therefore, option-2 is more potential to make the international cooperation happen.

References

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