Common Assertions About Public Organizations and Public Management.docx

Common Assertions About Public Organizations and Public
Management
In spite of the difficulties described in the preceding section,
the stream of assertions and research findings continues. During
the 1970s and 1980s, various reviews compiled the most
frequent arguments and evidence about the distinction between
public and private (Fottler, 1981; Meyer, 1982; Rainey,
Backoff, and Levine, 1976). There has been a good deal of
progress in research, but the basic points of contention have not
changed substantially. Exhibit 3.1 shows a recent summary and
introduces many of the issues that later chapters examine. The
exhibit and the discussion of it that follows pull together
theoretical statements, expert observations, and research
findings. Except for those mentioned, it omits many
controversies about the accuracy of the statements (these are
considered in later chapters). Still, it presents a reasonable
depiction of prevailing issues and views about the nature of
public organizations and management that amounts to a theory
of public organizations.
EXHIBIT 3.1 Distinctive Characteristics of Public
Management and Public Organizations: A Summary of Common
Assertions and Research Findings
I.ENVIRONMENTAL FACTORS
I.1. Public organizations are characterized by an absence of
economic markets for outputs and a reliance on governmental
appropriations for financial resources.
I.1.a. There is less incentive to achieve cost reduction,
operating efficiency, and effective performance.
I.1.b. There is lower efficiency in allocating resources
(weaker reflection of consumer preferences, less proportioning
of supply to demand).
I.1.c. There is less availability of relatively clear market
indicators and information (prices, profits, market share) for use
in managerial decisions.

I.2. Public organizations are subject to particularly elaborate
and intensive formal legal constraints as a result of oversight by
legislative branch, executive branch hierarchy and oversight
agencies, and courts.
I.2.a. There are more constraints on domains of operation
and on procedures (and therefore less autonomy for managers in
making such choices).
I.2.b. There is a greater tendency toward proliferation of
formal administrative controls.
I.2.c. There is a larger number of external sources of formal
authority and influence, with greater fragmentation among
them.
I.3. Public organizations are subject to more intensive external
political influences.
I.3.a. There is greater diversity in and intensity of external
informal political influences on decisions (including political
bargaining and lobbying; public opinion; interest-group, client,
and constituent pressures).
I.3.b. There is a greater need for political support from
client groups, constituencies, and formal authorities in order to
obtain appropriations and authorization for actions.
II.ORGANIZATION-ENVIRONMENT TRANSACTIONS
II.1. Public organizations and managers are often involved in
production of public goods or handling of significant
externalities. Outputs are not readily transferable to economic
markets at a market price.
II.2. Government activities are often coercive, monopolistic, or
unavoidable. Government has unique sanctioning and coercion
power and is often the sole provider. Participation in
consumption and financing of activities is often mandatory.
II.3. Government activities often have a broader impact and
greater symbolic significance. There is a broader scope of
concern, such as for general public interest criteria.
II.4. There is greater public scrutiny of public managers.
II.5. There are unique expectations for fairness, responsiveness,
honesty, openness, and accountability.

III.ORGANIZATIONAL ROLES, STRUCTURES, AND
PROCESSES
The following distinctive characteristics of organizational roles,
structures, and processes have been frequently asserted to result
from the distinctions cited under I and II. More recently,
distinctions of this nature have been analyzed in research with
varying results.
III.1.Greater Goal Ambiguity, Multiplicity, and Conflict
III.1.a. There is greater vagueness, intangibility, or difficulty
in measuring goals and performance criteria; the goals are more
debatable and value-laden (for example, defense readiness,
public safety, a clean environment, better living standards for
the poor and unemployed).
III.1.b. There is a greater multiplicity of goals and criteria
(efficiency, public accountability and openness, political
responsiveness, fairness and due process, social equity and
distributional criteria, moral correctness of behavior).
III.1.c. There is a greater tendency of the goals to be
conflicting, to involve more trade-offs (efficiency versus
openness to public scrutiny, efficiency versus due process and
social equity, conflicting demands of diverse constituencies and
political authorities).
III.2.Distinctive Features of General Managerial Roles
III.2.a. Recent studies have found that public managers’
general roles involve many of the same functions and role
categories as those of managers in other settings but with some
distinctive features: a more political, expository role, involving
more meetings with and interventions by external interest
groups and political authorities; more crisis management and
“fire drills”; greater challenge to balance external political
relations with internal management functions.
III.3.Administrative Authority and Leadership Practices
III.3.a. Public managers have less decision-making autonomy
and flexibility because of elaborate institutional constraints and
external political influences. There are more external
interventions, interruptions, and constraints.

III.3.b. Public managers have weaker authority over
subordinates and lower levels as a result of institutional
constraints (for example, civil service personnel systems,
purchasing and procurement systems) and external political
alliances of subunits and subordinates (with interest groups,
legislators).
III.3.c. Higher-level public managers show greater reluctance
to delegate authority and a tendency to establish more levels of
review and approval and to make greater use of formal
regulations to control lower levels.
III.3.d. More frequent turnover of top leaders due to elections
and political appointments causes more difficulty in
implementing plans and innovations.
III.3.e. Recent counterpoint studies describe entrepreneurial
behaviors and managerial excellence by public managers.
III.4.Organizational Structure
III.4.a. There are numerous assertions that public
organizations are subject to more red tape and more elaborate
bureaucratic structures.
III.4.b. Empirical studies report mixed results, some
supporting the assertions about red tape, some not supporting
them. Numerous studies find some structural distinctions for
public forms of organizations, although not necessarily more
bureaucratic structuring.
III.5.Strategic Decision-Making Processes
III.5.a. Recent studies show that strategic decision-making
processes in public organizations can be generally similar to
those in other settings but are more likely to be subject to
interventions, interruptions, and greater involvement of external
authorities and interest groups.
III.6.Incentives and Incentive Structures
III.6.a. Numerous studies show that public managers and
employees perceive greater administrative constraints on the
administration of extrinsic incentives such as pay, promotion,
and disciplinary action than do their counterparts in private
organizations.

III.6.b. Recent studies indicate that public managers and
employees perceive weaker relations between performance and
extrinsic rewards such as pay, promotion, and job security. The
studies indicate that there may be some compensating effect of
service and other intrinsic incentives for public employees and
show no clear relationship between employee performance and
perceived differences in the relationship between rewards and
performance.
III.7.Individual Characteristics, Work-Related Attitudes and
Behaviors
III.7.a. A number of studies have found different work-
related values on the part of public managers and employees,
such as lower valuation of monetary incentives and higher
levels of public service motivation.
III.7.b. Numerous highly diverse studies have found lower
levels of work satisfaction and organizational commitment
among public managers and employees than among those in the
private sector. The level of satisfaction among public sector
samples is generally high but tends consistently to be somewhat
lower than that among private comparison groups.
III.8.Organizational and Individual Performance
III.8.a. There are numerous assertions that public
organizations and employees are cautious and not innovative.
The evidence for this is mixed.
III.8.b. Numerous studies indicate that public forms of
various types of organizations tend to be less efficient in
providing services than their private counterparts, although
results tend to be mixed for hospitals and utilities. (Public
utilities have been found to be efficient somewhat more often.)
Yet other authors strongly defend the efficiency and general
performance of public organizations, citing various forms of
evidence.
Source: Adapted from Rainey, Backoff, and Levine, 1976, and
Rainey, 1989.
(Rainey 79-82)
Rainey, Hal G. Understanding and Managing Public

Organizations, 5th Edition. Jossey-Bass, 2014-01-27.
VitalBook file.
The citation provided is a guideline. Please check each citation
for accuracy before use.
CHAPTER THREE WHAT MAKES PUBLIC
ORGANIZATIONS DISTINCTIVE
The overview of organization theory in Chapter Two brings us
to a fascinating and important controversy. Leading experts on
management and organizations have spurned the distinction
between public and private organizations as either a crude
oversimplification or an unimportant issue. Other very
knowledgeable people have called for the development of a
field that recognizes the distinctive nature of public
organizations and public management. Meanwhile, policymakers
around the world struggle with decisions—involving trillions of
dollars’ worth of assets—about the privatization of state
activities and the proper roles of the public and private sectors.
Figure 1.2 asserts that government organizations’ status as
public bodies has a major influence on their environment, goals,
and values, and hence on their other characteristics. This
characterization sides with those who see public organizations
and managers as sufficiently distinct to deserve special analysis.
This chapter discusses important theoretical and practical issues
that fuel this controversy and develops some conclusions about
the distinction between public and private organizations. First,
it examines in depth the problems with this distinction. It then
describes the overlapping of the public, private, and nonprofit
sectors in the United States, which precludes simple distinctions
among them. The discussion then turns to the other side of the
debate: the meaning and importance of the distinction. If they
are not distinct from other organizations, such as businesses, in
any important way, why do public organizations exist? Answers
to this question point to the inevitable need for public
organizations and to their distinctive attributes. Still, given all

the complexities, how can we define public organizations and
managers? This chapter discusses some of the confusion over
the meaning of public organizations and then describes some of
the best-developed ways of defining the category and
conducting research to clarify it. After analyzing some of the
problems that arise in conducting such research, the chapter
concludes with a description of the most frequent observations
about the nature of public organizations and managers. The
remainder of the book examines the research and debate on the
accuracy of these observations.
Public Versus Private: A Dangerous Distinction?
For years, authors have cautioned against making oversimplified
distinctions between public and private management (Bozeman,
1987; Murray, 1975; Simon, 1995, 1998). Objections to such
distinctions deserve careful attention because they provide
valuable counterpoints to invidious stereotypes about
government organizations and the people who work in them.
They also point out realities of the contemporary political
economy and raise challenges that we must face when clarifying
the distinction.
The Generic Tradition in Organization Theory
A distinguished intellectual tradition bolsters the generic
perspective on organizations—that is, the position that
organization and management theorists should emphasize the
commonalities among organizations in order to develop
knowledge that will be applicable to all organizations, avoiding
such popular distinctions as public versus private and profit
versus nonprofit. As serious analysis of organizations and
management burgeoned early in the twentieth century, leading
figures argued that their insights applied across commonly
differentiated types of organizations. Many of them pointedly
referred to the distinction between public and private
organizations as the sort of crude oversimplification that
theorists must overcome. From their point of view, such
distinctions pose intellectual dangers: they oversimplify,
confuse, mislead, and impede sound theory and research.

The historical review of organization theory in the preceding
chapter illustrates how virtually all of the major contributions
to the field were conceived to apply broadly across all types of
organizations, or in some cases to concentrate on industry.
Throughout the evolution described in that review, the
distinction between public and private organizations received
short shrift.
In some cases, the authors either clearly implied or aggressively
asserted that their ideas applied to both public and private
organizations. Max Weber claimed that his analysis of
bureaucratic organizations applied to both government agencies
and business firms. Frederick Taylor applied his scientific
management procedures in government arsenals and other public
organizations, and such techniques are widely applied in both
public and private organizations today. Similarly, members of
the administrative management school sought to develop
standard principles to govern the administrative structures of all
organizations. The emphasis on social and psychological factors
in the workplace in the Hawthorne studies, McGregor's Theory
Y, and Kurt Lewin's research pervades the organizational
development procedures that consultants apply in government
agencies today (Golembiewski, 1985).
Herbert Simon (1946) implicitly framed much of his work as
being applicable to all organizational settings, both public and
private. Beginning as a political scientist, he coauthored one of
the leading texts in public administration (Simon, Smithburg,
and Thompson, 1950). It contains a sophisticated discussion of
the political context of public organizations. It also argues,
however, that there are more similarities than differences
between public and private organizations. Accordingly, in his
other work he concentrated on general analyses of organizations
(Simon, 1948; March and Simon, 1958). He thus implied that
his insights about satisficing and other organizational processes
apply across all types of organizations. In his more recent work,
shortly before his death, he emphatically asserted that public,
private, and nonprofit organizations are equivalent on key

dimensions. He said that public, private, and nonprofit
organizations are essentially identical on the dimension that
receives more attention than virtually any other dimension in
discussions of the unique aspects of public organizations—the
capacities of leaders to reward employees (Simon, 1995, p. 283,
n. 3). He stated that the “common claim that public and
nonprofit organizations cannot, and on average do not, operate
as efficiently as private businesses” is simply false (Simon,
1998, p. 11). Thus the leading intellectual figure of organization
theory clearly assigned relative unimportance to the
distinctiveness of public organizations.
Chapter Two also showed that contingency theory considers the
primary contingencies affecting organizational structure and
design to be environmental uncertainty and complexity, the
variability and complexity of organizational tasks and
technologies (the work that the organization does and how it
does it), organizational size, and the strategic decisions of
managers. Thus, even though this perspective emphasizes
variations among organizations, it downplays any particular
distinctiveness of public organizations. James Thompson
(1962), a leading figure among the contingency theorists,
echoed the generic refrain—that public and private
organizations have more similarities than differences. During
the 1980s, the contingency perspective evolved in many
different directions, some involving more attention than others
to governmental and economic influences (Scott, 2003). Still,
the titles and coverage in management and organization theory
journals and in excellent overviews of the field (Daft, 2013)
reflect the generic tradition.
Findings from Research
Objections to distinguishing between public and private
organizations draw on more than theorists’ claims. Studies of
variables such as size, task, and technology in government
agencies show that these variables may influence public
organizations more than anything related to their status as a
governmental entity. These findings agree with the

commonsense observation that an organization becomes
bureaucratic not because it is in government or business but
because of its large size.
Major studies that analyzed many different organizations to
develop taxonomies and typologies have produced little
evidence of a strict division between public and private
organizations. Some of the prominent efforts to develop a
taxonomy of organizations based on empirical measures of
organizational characteristics either have failed to show any
value in drawing a distinction between public and private or
have produced inconclusive results. Haas, Hall, and Johnson
(1966) measured characteristics of a large sample of
organizations and used statistical techniques to categorize them
according to the characteristics they shared. A number of the
resulting categories included both public and private
organizations.
This finding is not surprising, because organizations’ tasks and
functions can have much more influence on their characteristics
than their status as public or private. A government-owned
hospital, for example, obviously resembles a private hospital
more than it resembles a government-owned utility. Consultants
and researchers frequently find, in both the public and the
private sectors, organizations with highly motivated employees
as well as severely troubled organizations. They often find that
factors such as leadership practices influence employee
motivation and job satisfaction more than whether the
employing organization is public, private, or nonprofit.
Pugh, Hickson, and Hinings (1969) classified fifty-eight
organizations into categories based on their structural
characteristics; they had predicted that the government
organizations would show more bureaucratic features, such as
more rules and procedures, but they found no such differences.
They did find, however, that the government organizations
showed higher degrees of control by external authorities,
especially over personnel procedures. The study included only
eight government organizations, all of them local government

units with functions similar to those of business organizations
(for example, a vehicle repair unit and a water utility).
Consequently, the researchers interpreted as inconclusive their
findings regarding whether government agencies differ from
private organizations in terms of their structural characteristics.
Studies such as these have consistently found the public-private
distinction inadequate for a general typology or taxonomy of
organizations (McKelvey, 1982).
The Blurring of the Sectors
Those who object to the claim that public organizations make up
a distinct category also point out that the public and private
sectors overlap and interrelate in a number of ways, and that
this blurring and entwining of the sectors has advanced even
further in recent years (Cooper, 2003, p. 11; Haque, 2001; Kettl,
1993, 2002; Moe, 2001; Weisbrod, 1997, 1998).
Mixed, Intermediate, and Hybrid Forms. A number of important
government organizations are designed to resemble business
firms. A diverse array of state-owned enterprises, government
corporations, government-sponsored corporations, and public
authorities perform crucial functions in the United States and
other countries (Musolf and Seidman, 1980; Seidman, 1983;
Walsh, 1978). Usually owned and operated by government, they
typically perform business-type functions and generate their
own revenues through sales of their products or by other means.
Such enterprises usually receive a special charter to operate
more independently than government agencies. Examples
include the U.S. Postal Service, the National Park Service, and
port authorities in many coastal cities; there are a multitude of
other such organizations at all levels of government. Such
organizations are sometimes the subjects of controversy over
whether they operate in a sufficiently businesslike fashion while
showing sufficient public accountability. These hybrid
arrangements often involve massive financial resources. In
1996, the U.S. comptroller general voiced concern over the
results of audits by the General Accounting Office (GAO, now
called the Governmental Accountability Office) of federal loan

and insurance programs. These programs provide student loans,
farm loans, deposit insurance for banks, flood and crop
insurance, and home mortgages. The programs are carried out
by government-sponsored enterprises such as the Federal
National Mortgage Association (“Fannie Mae”). The
comptroller general said that the GAO audits indicated that
cutbacks in federal funding and personnel have left the
government with insufficient financial accounting systems and
personnel to monitor these liabilities properly. The federal
liabilities for these programs total $7.3 trillion. Since the
comptroller general made his assessment, experts continued to
point to accountability issues that these organizations pose,
because they tend to have relative independence from political
and regulatory controls and can use their resources to gain and
even extend their independence (Koppel, 2001; Moe, 2001).
These conditions exploded in 2007 and 2008, as part of the
financial crisis described at the beginning of this book. Fannie
Mae and Freddie Mac played major roles in the crisis, although
experts heatedly debate the nature of their involvement and how
much they contributed to the crisis. Critics claimed that
government officials had for years emphasized providing low-
income citizens with access to mortgage money to use in buying
homes, and Fannie Mae and Freddie Mac served as primary
vehicles for implementing this policy. The critics contend that
the policy led these two quasi-governmental organizations to
extend large amounts of mortgage money to people who could
not afford to make their mortgage payments. More important,
they said, in implementing the policy Fannie Mae and Freddie
Mac encouraged private banks to follow the same pattern, and
the banks poured massive amounts of money into mortgage
loans to people who could not afford them. It seems crazy that
such organizations would make so many bad loans, but the
organizations made money by pooling the mortgage payments
into investment vehicles and selling them like bonds or notes to
investors. Investors from around the world bought these
“collateralized debt obligations” and related types of

investments, and the banks had the incentive to keep extending
more and more mortgages to people who could not afford them.
Ultimately, the holders of the mortgages began to default on
them, and this system of investments collapsed, causing huge
losses for Fannie Mae and Freddie Mac, and even greater losses
for the private banks and financial institutions. The depth and
severity of these losses is unclear at the time of this writing,
and stories in the news media describe government
policymakers’ and bank executives’ serious consideration of
having the federal government take substantial amounts of
control over one or more of the largest private financial
corporations in the United States, by buying large proportions
of the corporations’ stock.
Some economists and financial experts defend Fannie Mae and
Freddie Mac, contending that they did not play as great a role in
the crisis as critics claim, because they had standards that
prevented them from extending as many bad mortgage loans as
did the private corporations. Whatever the case, Fannie Mae and
Freddie Mac both faced financial collapse and had to be taken
over and restructured by government officials. During 2008, the
stock price of Fannie Mae declined from about $70 per share to
$1 per share. It is hard to avoid interpreting that item of
information as anything other than a disaster for stockholders.
Whatever the magnitude of the role of the government-
sponsored corporations in precipitating the crisis, one can
hardly provide a more dramatic example of their importance.
On the other side of the coin are the many nonprofit, or third-
sector, organizations that perform functions similar to those of
government organizations. Like government agencies, many
nonprofits obviously have no profit indicators or incentives and
often pursue social or public service missions, often under
contract with the government (Weisbrod, 1997). To further
complicate the picture, however, experts on nonprofit
organizations observe a trend toward commercialization of
nonprofits, by which they try to make money in businesslike
ways that may jeopardize their public service missions

(Weisbrod, 1998). Finally, many private, for-profit
organizations work with government in ways that blur the
distinction between them. Some corporations, such as defense
contractors, receive so much funding and direction from
government that some analysts equate them with government
bureaus (Bozeman, 1987; Weidenbaum, 1969).
Functional Analogies: Doing the Same Things. Obviously, many
people and organizations in the public and private sectors
perform virtually the same functions. General managers,
secretaries, computer programmers, auditors, personnel officers,
maintenance workers, and many other specialists perform
similar tasks in public, private, and hybrid organizations.
Organizations located in the different sectors—for example,
hospitals, schools, and electric utilities—also perform the same
general functions. The New Public Management movement that
has spread through many nations in recent decades has taken
various forms but has often emphasized the use in government
of procedures similar to those purportedly used in business and
private market activities, based on the assumption that
government and business organizations are sufficiently similar
to make it possible to use similar techniques in both settings
(Barzelay, 2001; Ferlie, Pettigrew, Ashburner, and Fitzgerald,
1996; Kettl, 2002).
Complex Interrelations. Government, business, and nonprofit
organizations interrelate in a number of ways (Kettl, 1993,
2002; Weisbrod, 1997). Governments buy many products and
services from nongovernmental organizations. Through
contracts, grants, vouchers, subsidies, and franchises,
governments arrange for the delivery of health care, sanitation
services, research services, and numerous other services by
private organizations. These entangled relations muddle the
question of where government and the private sector begin and
end. Banks process loans provided by the Veterans
Administration and receive Social Security deposits by wire for
Social Security recipients. Private corporations handle portions
of the administration of Medicare by means of government

contracts, and private physicians render most Medicare services.
Private nonprofit corporations and religious organizations
operate facilities for the elderly or for delinquent youths, using
funds provided through government contracts and operate under
extensive government regulation. In thousands of examples of
this sort, private businesses and nonprofit organizations become
part of the service delivery process for government programs
and further blur the public-private distinction. Chapters Four,
Five, and Fourteen provide more detail on these situations and
their implications for organizations and management (Moe,
1996, 2001; Provan and Milward, 1995).
Analogies from Social Roles and Contexts. Government uses
laws, regulations, and fiscal policies to influence private
organizations. Environmental protection regulations, tax laws,
monetary policies, and equal employment opportunity
regulations either impose direct requirements on private
organizations or establish inducements and incentives to get
them to act in certain ways. Here again nongovernmental
organizations share in the implementation of public policies.
They become part of government and an extension of it. Even
working independently of government, business organizations
affect the quality of life in the nation and the public interest.
Members of the most profit-oriented firms argue that their
organizations serve their communities and the well-being of the
nation as much as governmental organizations do. As noted
earlier, however, observers worry that excessive
commercialization is making too many nonprofits too much like
business firms. According to some critics, government agencies
also sometimes behave too much like private organizations. One
of the foremost contemporary criticisms of government
concerns the influence that interest groups wield over public
agencies and programs. According to the critics, these groups
use the agencies to serve their own interests rather than the
public interest.
The Importance of Avoiding Oversimplification
Theory, research, and the realities of the contemporary political

economy show the inadequacy of simple notions about
differences between public and private organizations. For
management theory and research, this realization poses the
challenge of determining what role a distinction between public
and private can play. For practical management and public
policy, it means that we must avoid oversimplifying the issue
and jumping to conclusions about sharp distinctions between
public and private.
That advice may sound obvious enough, but violations of it
abound. During the intense debate about the Department of
Homeland Security at the time of this writing, a Wall Street
Journal editorial warned that the federal bureaucracy would be a
major obstacle to effective homeland security policies. The
editorial repeated the simplistic stereotypes about federal
agencies that have prevailed for years. The author claimed that
federal agencies steadfastly resist change and aggrandize
themselves by adding more and more employees. The editorial
advanced these claims even at a time when the Bush
administration's President's Management Agenda pointed out
that the Clinton administration, through the National
Performance Review, had reduced federal employment by over
324,000 positions and criticized the way the reductions were
carried out. Surveys also have shown that public managers and
business managers often hold inaccurate stereotypes about each
other (Stevens, Wartick, and Bagby, 1988; Weiss, 1983). For
example, the increase in privatization and contracting out has
led to increasing controversy over whether privatization
proponents have made oversimplified claims about the benefits
of privatization, with proponents claiming great successes
(Savas, 2000) and skeptics raising doubts (Donahue, 1990;
Hodge, 2000; Kuttner, 1997; Sclar, 2000).
For all the reasons just discussed, clear demarcations between
the public and private sectors are impossible, and
oversimplified distinctions between public and private
organizations are misleading. We still face a paradox, however,
because scholars and officials make the distinction repeatedly in

relation to important issues, and public and private
organizations do differ in some obvious ways.
Public Organizations: An Essential Distinction
If there is no real difference between public and private
organizations, can we nationalize all industrial firms, or
privatize all government agencies? Private executives earn
massively higher pay than their government counterparts. The
financial press regularly lambastes corporate executive
compensation practices as absurd and claims that these
compensation policies squander many billions of dollars. Can
we simply put these business executives on the federal
executive compensation schedule and save a lot of money for
these corporations and their customers? Such questions make it
clear that there are some important differences in the
administration of public and private organizations. Scholars
have provided useful insights into the distinction in recent
years, and researchers and managers have reported more
evidence of the distinctive features of public organizations.
The Purpose of Public Organizations
Why do public organizations exist? We can draw answers to this
question from both political and economic theory. Even some
economists who strongly favor free markets regard government
agencies as inevitable components of free-market economies
(Downs, 1967).
Politics and Markets. Decades ago, Robert Dahl and Charles
Lindblom (1953) provided a useful analysis of the raison d'être
for public organizations. They analyzed the alternatives
available to nations for controlling their political economies.
Two of the fundamental alternatives are political hierarchies
and economic markets. In advanced industrial democracies, the
political process involves a complex array of contending groups
and institutions that produces a complex, hydra-headed
hierarchy, which Dahl and Lindblom called a polyarchy. Such a
politically established hierarchy can direct economic activities.
Alternatively, the price system in free economic markets can
control economic production and allocation decisions. All

nations use some mixture of markets and polyarchies.
Political hierarchy, or polyarchy, draws on political authority,
which can serve as a very useful, inexpensive means of social
control. It is cheaper to have people relatively willingly stop at
red lights than to work out a system of compensating them for
doing so. However, political authority can be “all thumbs”
(Lindblom, 1977). Central plans and directives often prove
confining, clumsy, ineffective, poorly adapted to many local
circumstances, and cumbersome to change.
Markets have the advantage of operating through voluntary
exchanges. Producers must induce consumers to engage
willingly in exchanges with them. They have the incentive to
produce what consumers want, as efficiently as possible. This
allows much freedom and flexibility, provides incentives for
efficient use of resources, steers production in the direction of
consumer demands, and avoids the problems of central planning
and rule making inherent in a polyarchy. Markets, however,
have a limited capacity to handle the types of problems for
which government action is required (Downs, 1967; Lindblom,
1977). Such problems include the following:
Public goods and free riders. Certain services, once provided,
benefit everyone. Individuals have the incentive to act as free
riders and let others pay, so government imposes taxes to pay
for such services. National defense is the most frequently cited
example. Similarly, even though private organizations could
provide educational and police services, government provides
most of them because they entail general benefits for the entire
society.
Individual incompetence. People often lack sufficient education
or information to make wise individual choices in some areas,
so government regulates these activities. For example, most
people would not be able to determine the safety of particular
medicines, so the Food and Drug Administration regulates the
distribution of pharmaceuticals.
Externalities or spillovers. Some costs may spill over onto
people who are not parties to a market exchange. A

manufacturer polluting the air imposes costs on others that the
price of the product does not cover. The Environmental
Protection Agency regulates environmental externalities of this
sort.
Government acts to correct problems that markets themselves
create or are unable to address—monopolies, the need for
income redistribution, and instability due to market
fluctuations—and to provide crucial services that are too risky
or expensive for private competitors to provide. Critics also
complain that market systems produce too many frivolous and
trivial products, foster crassness and greed, confer too much
power on corporations and their executives, and allow extensive
bungling and corruption. Public concern over such matters
bolsters support for a strong and active government (Lipset and
Schneider, 1987). Conservative economists argue that markets
eventually resolve many of these problems and that government
interventions simply make matters worse. Advocates of
privatization claim that government does not have to perform
many of the functions it does and that government provides
many services that private organizations can provide more
efficiently. Nevertheless, American citizens broadly support
government action in relation to many of these problems.
(Rainey 53-64)
VitalBook file.
CHAPTER THREE WHAT MAKES PUBLIC
ORGANIZATIONS DISTINCTIVE
The overview of organization theory in Chapter Two brings us
to a fascinating and important controversy. Leading experts on
management and organizations have spurned the distinction
between public and private organizations as either a crude
oversimplification or an unimportant issue. Other very
knowledgeable people have called for the development of a

field that recognizes the distinctive nature of public
organizations and public management. Meanwhile, policymakers
around the world struggle with decisions—involving trillions of
dollars’ worth of assets—about the privatization of state
activities and the proper roles of the public and private sectors.
Figure 1.2 asserts that government organizations’ status as
public bodies has a major influence on their environment, goals,
and values, and hence on their other characteristics. This
characterization sides with those who see public organizations
and managers as sufficiently distinct to deserve special analysis.
This chapter discusses important theoretical and practical issues
that fuel this controversy and develops some conclusions about
the distinction between public and private organizations. First,
it examines in depth the problems with this distinction. It then
describes the overlapping of the public, private, and nonprofit
sectors in the United States, which precludes simple distinctions
among them. The discussion then turns to the other side of the
debate: the meaning and importance of the distinction. If they
are not distinct from other organizations, such as businesses, in
any important way, why do public organizations exist? Answers
to this question point to the inevitable need for public
organizations and to their distinctive attributes. Still, given all
the complexities, how can we define public organizations and
managers? This chapter discusses some of the confusion over
the meaning of public organizations and then describes some of
the best-developed ways of defining the category and
conducting research to clarify it. After analyzing some of the
problems that arise in conducting such research, the chapter
concludes with a description of the most frequent observations
about the nature of public organizations and managers. The
remainder of the book examines the research and debate on the
accuracy of these observations.
Public Versus Private: A Dangerous Distinction?
For years, authors have cautioned against making oversimplified
distinctions between public and private management (Bozeman,
1987; Murray, 1975; Simon, 1995, 1998). Objections to such

distinctions deserve careful attention because they provide
valuable counterpoints to invidious stereotypes about
government organizations and the people who work in them.
They also point out realities of the contemporary political
economy and raise challenges that we must face when clarifying
the distinction.
The Generic Tradition in Organization Theory
A distinguished intellectual tradition bolsters the generic
perspective on organizations—that is, the position that
organization and management theorists should emphasize the
commonalities among organizations in order to develop
knowledge that will be applicable to all organizations, avoiding
such popular distinctions as public versus private and profit
versus nonprofit. As serious analysis of organizations and
management burgeoned early in the twentieth century, leading
figures argued that their insights applied across commonly
differentiated types of organizations. Many of them pointedly
referred to the distinction between public and private
organizations as the sort of crude oversimplification that
theorists must overcome. From their point of view, such
distinctions pose intellectual dangers: they oversimplify,
confuse, mislead, and impede sound theory and research.
The historical review of organization theory in the preceding
chapter illustrates how virtually all of the major contributions
to the field were conceived to apply broadly across all types of
organizations, or in some cases to concentrate on industry.
Throughout the evolution described in that review, the
distinction between public and private organizations received
short shrift.
In some cases, the authors either clearly implied or aggressively
asserted that their ideas applied to both public and private
organizations. Max Weber claimed that his analysis of
bureaucratic organizations applied to both government agencies
and business firms. Frederick Taylor applied his scientific
management procedures in government arsenals and other public
organizations, and such techniques are widely applied in both

public and private organizations today. Similarly, members of
the administrative management school sought to develop
standard principles to govern the administrative structures of all
organizations. The emphasis on social and psychological factors
in the workplace in the Hawthorne studies, McGregor's Theory
Y, and Kurt Lewin's research pervades the organizational
development procedures that consultants apply in government
agencies today (Golembiewski, 1985).
Herbert Simon (1946) implicitly framed much of his work as
being applicable to all organizational settings, both public and
private. Beginning as a political scientist, he coauthored one of
the leading texts in public administration (Simon, Smithburg,
and Thompson, 1950). It contains a sophisticated discussion of
the political context of public organizations. It also argues,
however, that there are more similarities than differences
between public and private organizations. Accordingly, in his
other work he concentrated on general analyses of organizations
(Simon, 1948; March and Simon, 1958). He thus implied that
his insights about satisficing and other organizational processes
apply across all types of organizations. In his more recent work,
shortly before his death, he emphatically asserted that public,
private, and nonprofit organizations are equivalent on key
dimensions. He said that public, private, and nonprofit
organizations are essentially identical on the dimension that
receives more attention than virtually any other dimension in
discussions of the unique aspects of public organizations—the
capacities of leaders to reward employees (Simon, 1995, p. 283,
n. 3). He stated that the “common claim that public and
nonprofit organizations cannot, and on average do not, operate
as efficiently as private businesses” is simply false (Simon,
1998, p. 11). Thus the leading intellectual figure of organization
theory clearly assigned relative unimportance to the
distinctiveness of public organizations.
Chapter Two also showed that contingency theory considers the
primary contingencies affecting organizational structure and
design to be environmental uncertainty and complexity, the

variability and complexity of organizational tasks and
technologies (the work that the organization does and how it
does it), organizational size, and the strategic decisions of
managers. Thus, even though this perspective emphasizes
variations among organizations, it downplays any particular
distinctiveness of public organizations. James Thompson
(1962), a leading figure among the contingency theorists,
echoed the generic refrain—that public and private
organizations have more similarities than differences. During
the 1980s, the contingency perspective evolved in many
different directions, some involving more attention than others
to governmental and economic influences (Scott, 2003). Still,
the titles and coverage in management and organization theory
journals and in excellent overviews of the field (Daft, 2013)
reflect the generic tradition.
Findings from Research
Objections to distinguishing between public and private
organizations draw on more than theorists’ claims. Studies of
variables such as size, task, and technology in government
agencies show that these variables may influence public
organizations more than anything related to their status as a
governmental entity. These findings agree with the
commonsense observation that an organization becomes
bureaucratic not because it is in government or business but
because of its large size.
Major studies that analyzed many different organizations to
develop taxonomies and typologies have produced little
evidence of a strict division between public and private
organizations. Some of the prominent efforts to develop a
taxonomy of organizations based on empirical measures of
organizational characteristics either have failed to show any
value in drawing a distinction between public and private or
have produced inconclusive results. Haas, Hall, and Johnson
(1966) measured characteristics of a large sample of
organizations and used statistical techniques to categorize them
according to the characteristics they shared. A number of the

resulting categories included both public and private
organizations.
This finding is not surprising, because organizations’ tasks and
functions can have much more influence on their characteristics
than their status as public or private. A government-owned
hospital, for example, obviously resembles a private hospital
more than it resembles a government-owned utility. Consultants
and researchers frequently find, in both the public and the
private sectors, organizations with highly motivated employees
as well as severely troubled organizations. They often find that
factors such as leadership practices influence employee
motivation and job satisfaction more than whether the
employing organization is public, private, or nonprofit.
Pugh, Hickson, and Hinings (1969) classified fifty-eight
organizations into categories based on their structural
characteristics; they had predicted that the government
organizations would show more bureaucratic features, such as
more rules and procedures, but they found no such differences.
They did find, however, that the government organizations
showed higher degrees of control by external authorities,
especially over personnel procedures. The study included only
eight government organizations, all of them local government
units with functions similar to those of business organizations
(for example, a vehicle repair unit and a water utility).
Consequently, the researchers interpreted as inconclusive their
findings regarding whether government agencies differ from
private organizations in terms of their structural characteristics.
Studies such as these have consistently found the public-private
distinction inadequate for a general typology or taxonomy of
organizations (McKelvey, 1982).
The Blurring of the Sectors
Those who object to the claim that public organizations make up
a distinct category also point out that the public and private
sectors overlap and interrelate in a number of ways, and that
this blurring and entwining of the sectors has advanced even
further in recent years (Cooper, 2003, p. 11; Haque, 2001; Kettl,

1993, 2002; Moe, 2001; Weisbrod, 1997, 1998).
Mixed, Intermediate, and Hybrid Forms. A number of important
government organizations are designed to resemble business
firms. A diverse array of state-owned enterprises, government
corporations, government-sponsored corporations, and public
authorities perform crucial functions in the United States and
other countries (Musolf and Seidman, 1980; Seidman, 1983;
Walsh, 1978). Usually owned and operated by government, they
typically perform business-type functions and generate their
own revenues through sales of their products or by other means.
Such enterprises usually receive a special charter to operate
more independently than government agencies. Examples
include the U.S. Postal Service, the National Park Service, and
port authorities in many coastal cities; there are a multitude of
other such organizations at all levels of government. Such
organizations are sometimes the subjects of controversy over
whether they operate in a sufficiently businesslike fashion while
showing sufficient public accountability. These hybrid
arrangements often involve massive financial resources. In
1996, the U.S. comptroller general voiced concern over the
results of audits by the General Accounting Office (GAO, now
called the Governmental Accountability Office) of federal loan
and insurance programs. These programs provide student loans,
farm loans, deposit insurance for banks, flood and crop
insurance, and home mortgages. The programs are carried out
by government-sponsored enterprises such as the Federal
National Mortgage Association (“Fannie Mae”). The
comptroller general said that the GAO audits indicated that
cutbacks in federal funding and personnel have left the
government with insufficient financial accounting systems and
personnel to monitor these liabilities properly. The federal
liabilities for these programs total $7.3 trillion. Since the
comptroller general made his assessment, experts continued to
point to accountability issues that these organizations pose,
because they tend to have relative independence from political
and regulatory controls and can use their resources to gain and

even extend their independence (Koppel, 2001; Moe, 2001).
These conditions exploded in 2007 and 2008, as part of the
financial crisis described at the beginning of this book. Fannie
Mae and Freddie Mac played major roles in the crisis, although
experts heatedly debate the nature of their involvement and how
much they contributed to the crisis. Critics claimed that
government officials had for years emphasized providing low-
income citizens with access to mortgage money to use in buying
homes, and Fannie Mae and Freddie Mac served as primary
vehicles for implementing this policy. The critics contend that
the policy led these two quasi-governmental organizations to
extend large amounts of mortgage money to people who could
not afford to make their mortgage payments. More important,
they said, in implementing the policy Fannie Mae and Freddie
Mac encouraged private banks to follow the same pattern, and
the banks poured massive amounts of money into mortgage
loans to people who could not afford them. It seems crazy that
such organizations would make so many bad loans, but the
organizations made money by pooling the mortgage payments
into investment vehicles and selling them like bonds or notes to
investors. Investors from around the world bought these
“collateralized debt obligations” and related types of
investments, and the banks had the incentive to keep extending
more and more mortgages to people who could not afford them.
Ultimately, the holders of the mortgages began to default on
them, and this system of investments collapsed, causing huge
losses for Fannie Mae and Freddie Mac, and even greater losses
for the private banks and financial institutions. The depth and
severity of these losses is unclear at the time of this writing,
and stories in the news media describe government
policymakers’ and bank executives’ serious consideration of
having the federal government take substantial amounts of
control over one or more of the largest private financial
corporations in the United States, by buying large proportions
of the corporations’ stock.
Some economists and financial experts defend Fannie Mae and

Freddie Mac, contending that they did not play as great a role in
the crisis as critics claim, because they had standards that
prevented them from extending as many bad mortgage loans as
did the private corporations. Whatever the case, Fannie Mae and
Freddie Mac both faced financial collapse and had to be taken
over and restructured by government officials. During 2008, the
stock price of Fannie Mae declined from about $70 per share to
$1 per share. It is hard to avoid interpreting that item of
information as anything other than a disaster for stockholders.
Whatever the magnitude of the role of the government-
sponsored corporations in precipitating the crisis, one can
hardly provide a more dramatic example of their importance.
On the other side of the coin are the many nonprofit, or third-
sector, organizations that perform functions similar to those of
government organizations. Like government agencies, many
nonprofits obviously have no profit indicators or incentives and
often pursue social or public service missions, often under
contract with the government (Weisbrod, 1997). To further
complicate the picture, however, experts on nonprofit
organizations observe a trend toward commercialization of
nonprofits, by which they try to make money in businesslike
ways that may jeopardize their public service missions
(Weisbrod, 1998). Finally, many private, for-profit
organizations work with government in ways that blur the
distinction between them. Some corporations, such as defense
contractors, receive so much funding and direction from
government that some analysts equate them with government
bureaus (Bozeman, 1987; Weidenbaum, 1969).
Functional Analogies: Doing the Same Things. Obviously, many
people and organizations in the public and private sectors
perform virtually the same functions. General managers,
secretaries, computer programmers, auditors, personnel officers,
maintenance workers, and many other specialists perform
similar tasks in public, private, and hybrid organizations.
Organizations located in the different sectors—for example,
hospitals, schools, and electric utilities—also perform the same

general functions. The New Public Management movement that
has spread through many nations in recent decades has taken
various forms but has often emphasized the use in government
of procedures similar to those purportedly used in business and
private market activities, based on the assumption that
government and business organizations are sufficiently similar
to make it possible to use similar techniques in both settings
(Barzelay, 2001; Ferlie, Pettigrew, Ashburner, and Fitzgerald,
1996; Kettl, 2002).
Complex Interrelations. Government, business, and nonprofit
organizations interrelate in a number of ways (Kettl, 1993,
2002; Weisbrod, 1997). Governments buy many products and
services from nongovernmental organizations. Through
contracts, grants, vouchers, subsidies, and franchises,
governments arrange for the delivery of health care, sanitation
services, research services, and numerous other services by
private organizations. These entangled relations muddle the
question of where government and the private sector begin and
end. Banks process loans provided by the Veterans
Administration and receive Social Security deposits by wire for
Social Security recipients. Private corporations handle portions
of the administration of Medicare by means of government
contracts, and private physicians render most Medicare services.
Private nonprofit corporations and religious organizations
operate facilities for the elderly or for delinquent youths, using
funds provided through government contracts and operate under
extensive government regulation. In thousands of examples of
this sort, private businesses and nonprofit organizations become
part of the service delivery process for government programs
and further blur the public-private distinction. Chapters Four,
Five, and Fourteen provide more detail on these situations and
their implications for organizations and management (Moe,
1996, 2001; Provan and Milward, 1995).
Analogies from Social Roles and Contexts. Government uses
laws, regulations, and fiscal policies to influence private
organizations. Environmental protection regulations, tax laws,

monetary policies, and equal employment opportunity
regulations either impose direct requirements on private
organizations or establish inducements and incentives to get
them to act in certain ways. Here again nongovernmental
organizations share in the implementation of public policies.
They become part of government and an extension of it. Even
working independently of government, business organizations
affect the quality of life in the nation and the public interest.
Members of the most profit-oriented firms argue that their
organizations serve their communities and the well-being of the
nation as much as governmental organizations do. As noted
earlier, however, observers worry that excessive
commercialization is making too many nonprofits too much like
business firms. According to some critics, government agencies
also sometimes behave too much like private organizations. One
of the foremost contemporary criticisms of government
concerns the influence that interest groups wield over public
agencies and programs. According to the critics, these groups
use the agencies to serve their own interests rather than the
public interest.
The Importance of Avoiding Oversimplification
Theory, research, and the realities of the contemporary political
economy show the inadequacy of simple notions about
differences between public and private organizations. For
management theory and research, this realization poses the
challenge of determining what role a distinction between public
and private can play. For practical management and public
policy, it means that we must avoid oversimplifying the issue
and jumping to conclusions about sharp distinctions between
public and private.
That advice may sound obvious enough, but violations of it
abound. During the intense debate about the Department of
Homeland Security at the time of this writing, a Wall Street
Journal editorial warned that the federal bureaucracy would be a
major obstacle to effective homeland security policies. The
editorial repeated the simplistic stereotypes about federal

agencies that have prevailed for years. The author claimed that
federal agencies steadfastly resist change and aggrandize
themselves by adding more and more employees. The editorial
advanced these claims even at a time when the Bush
administration's President's Management Agenda pointed out
that the Clinton administration, through the National
Performance Review, had reduced federal employment by over
324,000 positions and criticized the way the reductions were
carried out. Surveys also have shown that public managers and
business managers often hold inaccurate stereotypes about each
other (Stevens, Wartick, and Bagby, 1988; Weiss, 1983). For
example, the increase in privatization and contracting out has
led to increasing controversy over whether privatization
proponents have made oversimplified claims about the benefits
of privatization, with proponents claiming great successes
(Savas, 2000) and skeptics raising doubts (Donahue, 1990;
Hodge, 2000; Kuttner, 1997; Sclar, 2000).
For all the reasons just discussed, clear demarcations between
the public and private sectors are impossible, and
oversimplified distinctions between public and private
organizations are misleading. We still face a paradox, however,
because scholars and officials make the distinction repeatedly in
relation to important issues, and public and private
organizations do differ in some obvious ways.
Public Organizations: An Essential Distinction
If there is no real difference between public and private
organizations, can we nationalize all industrial firms, or
privatize all government agencies? Private executives earn
massively higher pay than their government counterparts. The
financial press regularly lambastes corporate executive
compensation practices as absurd and claims that these
compensation policies squander many billions of dollars. Can
we simply put these business executives on the federal
executive compensation schedule and save a lot of money for
these corporations and their customers? Such questions make it
clear that there are some important differences in the

administration of public and private organizations. Scholars
have provided useful insights into the distinction in recent
years, and researchers and managers have reported more
evidence of the distinctive features of public organizations.
The Purpose of Public Organizations
Why do public organizations exist? We can draw answers to this
question from both political and economic theory. Even some
economists who strongly favor free markets regard government
agencies as inevitable components of free-market economies
(Downs, 1967).
Politics and Markets. Decades ago, Robert Dahl and Charles
Lindblom (1953) provided a useful analysis of the raison d'être
for public organizations. They analyzed the alternatives
available to nations for controlling their political economies.
Two of the fundamental alternatives are political hierarchies
and economic markets. In advanced industrial democracies, the
political process involves a complex array of contending groups
and institutions that produces a complex, hydra-headed
hierarchy, which Dahl and Lindblom called a polyarchy. Such a
politically established hierarchy can direct economic activities.
Alternatively, the price system in free economic markets can
control economic production and allocation decisions. All
nations use some mixture of markets and polyarchies.
Political hierarchy, or polyarchy, draws on political authority,
which can serve as a very useful, inexpensive means of social
control. It is cheaper to have people relatively willingly stop at
red lights than to work out a system of compensating them for
doing so. However, political authority can be “all thumbs”
(Lindblom, 1977). Central plans and directives often prove
confining, clumsy, ineffective, poorly adapted to many local
circumstances, and cumbersome to change.
Markets have the advantage of operating through voluntary
exchanges. Producers must induce consumers to engage
willingly in exchanges with them. They have the incentive to
produce what consumers want, as efficiently as possible. This
allows much freedom and flexibility, provides incentives for

efficient use of resources, steers production in the direction of
consumer demands, and avoids the problems of central planning
and rule making inherent in a polyarchy. Markets, however,
have a limited capacity to handle the types of problems for
which government action is required (Downs, 1967; Lindblom,
1977). Such problems include the following:
Public goods and free riders. Certain services, once provided,
benefit everyone. Individuals have the incentive to act as free
riders and let others pay, so government imposes taxes to pay
for such services. National defense is the most frequently cited
example. Similarly, even though private organizations could
provide educational and police services, government provides
most of them because they entail general benefits for the entire
society.
Individual incompetence. People often lack sufficient education
or information to make wise individual choices in some areas,
so government regulates these activities. For example, most
people would not be able to determine the safety of particular
medicines, so the Food and Drug Administration regulates the
distribution of pharmaceuticals.
Externalities or spillovers. Some costs may spill over onto
people who are not parties to a market exchange. A
manufacturer polluting the air imposes costs on others that the
price of the product does not cover. The Environmental
Protection Agency regulates environmental externalities of this
sort.
Government acts to correct problems that markets themselves
create or are unable to address—monopolies, the need for
income redistribution, and instability due to market
fluctuations—and to provide crucial services that are too risky
or expensive for private competitors to provide. Critics also
complain that market systems produce too many frivolous and
trivial products, foster crassness and greed, confer too much
power on corporations and their executives, and allow extensive
bungling and corruption. Public concern over such matters
bolsters support for a strong and active government (Lipset and

Schneider, 1987). Conservative economists argue that markets
eventually resolve many of these problems and that government
interventions simply make matters worse. Advocates of
privatization claim that government does not have to perform
many of the functions it does and that government provides
many services that private organizations can provide more
efficiently. Nevertheless, American citizens broadly support
government action in relation to many of these problems.
(Rainey 53-64)
VitalBook file.

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