Download REFORMING PUBLIC ADMINISTRATION STRATEGIC

REFORMING PUBLIC ADMINISTRATION AND ITS STRATEGIC PARTNERING FOR
SUSTAINABLE COMMUNITIES: LESSONS LEARNED AND CHALLENGES AHEAD
Zbigniew Bochniarz1, Rodica Stefanescu2, Dan Manoleli3
Abstract
The approaching 20 year anniversary of the beginning of the transformation process in Central and Eastern Europe
(CEE) provides an opportunity to assess results, compare them with other regions, particularly with the Commonwealth
of Independent States (CIS), which started its transformation two years later. The authors will evaluate which results of
the transformation contributed to bringing these nations to a more sustainable path of development, and what the forces
were behind those achievements. In addition, they will address the current challenges facing public administration,
understood in dual sense – as governance and public affairs education. The authors will utilize their experiences in
assisting the transformation processes in CEE and CIS, including their collaborative efforts over the last 17 years. The
basic theoretical concepts that inspired the authors are human and social capital and sustainability4.
1. INTRODUCTION
Increasingly fast economic integration, combined with the ongoing information revolution, and tremendous advances in
global transportation make the world more interdependent than ever before. This fast growing interdependence among
nations and continents, conventionally called globalization, presents a unique set of challenges and opportunities for
governments and their relationship with the public, business and NGO sectors. Government officials have to come to
terms with the fact that policies and programs cannot be established and maintained in a vacuum. Globalization has
created challenges through the increased international mobility of capital and labor: investors and corporate officials have
a growing range of options for the location of their investments; educated individuals can seek out many different venues
for their work and leisure; and policy makers can no longer create policy that ignores the likelihood of capital and labor
flight from their countries. They also cannot eliminate the possibility of the fast transfer of negative consequences from
falling global corporations, as we observed during the autumn of 2008, when the fall of the prominent Wall Street firms
caused global shock waves, creating thousands of bankruptcies among financial firms and adversely affecting millions of
people worldwide. This case clearly showed the limits of decade’s worth of economic policies based on unquestionable
free market principles, and called for governmental intervention. Despite government interventions worldwide, the global
financial crisis continues and the global economic recession deepens, adversely affecting the last decade of economic
growth in developed economies, as well as emerging economies, which have served as an engine of the global economy.
The economic crisis is not the only global problem we are facing today. Climate Change (CC) calls for cooperative global
action to limit emissions of greenhouse gases and scale down its current and future consequences, such as the
disappearance of glaciers, animal, and plant species, as well as weather anomalies (droughts, flooding, and hurricanes),
which carry the potential to create severe changes in agriculture and food security and significant structural shifts in
national and global economies. Synergy between economic and environmental crises will further exacerbate the negative
1
Visiting Professor at the Evans School of Public Affairs, University of Washington (UW), Associate Professor of the Warsaw School
of Economics (on leave), Honorary Professor at several CEE universities, including University of Warmia and Mazury (UWM) in
Olsztyn, Poland, and founder and former Director of the Center for Nations in Transition (CNT) at the Hubert H. Humphrey Institute of
Public Affairs, University of Minnesota, USA.
2 Ph.D. Candidate at the Technical University of Cluj-Napoca (UTCN), and Director of International Relationships and Programs at
the Ecological University of Bucharest (UEB), Romania
3 Professor at the Ecological University of Bucharest (UEB), and Director of the Center for Ecological Services (CESEC) with the
University of Bucharest (UoB), Romania.
4 Authors would like to express their gratitude for the inspiration of the recent publication of the international team led by Professor
Sandra Archibald (Archibald et al. 2009), and from the collaborative proposal prepared by faculty from the Evans School (UW) in
Seattle, the Maastricht Graduate School of Governance at Maastricht University in the Netherlands, Wagner School of Public Services
at New York University, USA, and Warsaw School of Economics in Poland. They are also in debt to Kay Sterner from the Evans
School for her comments and editorial contributions.
consequences of both crises and contribute to the emerging the 3rd crisis – a social crisis marked with increasing
unemployment and poverty, mass immigration and reallocation, and finally with social depravation and unrest.
Unfortunately, the social crisis further contributes to the negative synergetic crises by adversely affecting economic
performance and environmental quality.
The triple crisis raises many challenging questions to public administrations on how to manage these three different
crises: separately or together, at once, in a radical way, or step-by-step, in several stages. This situation reminds of the
conditions facing CEE countries at the end of the 1980s and at the beginning of the 1990s when they were facing a similar
triple threat [Archibald et al, 2009]. Today the 10 CEE economies (CEE10), which have completed the basic
transformation process and joined the European Union (EU) in 2004 (Czech Republic, Estonia, Hungary, Latvia,
Lithuania, Poland, Slovakia, and Slovenia) and in 2007 (Bulgaria and Romania) make up an important segment of the
emerging economies contributing significantly to economic growth in the EU and worldwide. They entered the
transformation process with stagnated economies, social unrest, and severe environmental problems, and went through a
deep two-three year recession followed a path of rapid growth that was not shared by a large part of other transforming
economies, particularly from CIS. Their experiences of overcoming multi-dimensional crises should be carefully studied
in relation to the current events. They have served as a great laboratory for academia, particularly for economists and
public administration (PA) professors and students, to learn how institutional innovations in the financial sector escaped
regulatory control and resulted in irresponsible behavior among consumers and bankers, which lead to housing bubbles
with “toxic assets” that are now worldwide. There is a wealth of new knowledge coming from this crisis which will
significantly influence academic curricula, teaching, research, and outreach in the near future.
2. WHAT WAS THE BASE-LINE FOR TRANSFORMATION IN C.E.E. AND C.I.S.?
Just a few years ago, the European Union celebrated its largest expansion ever. Many people in the West, however, were
not aware of the difficult transition the CEE10 had to undergo to join the EU, and how much they have overcome to meet
the EU criteria for accession. Because the new EU members came with dynamic economic growth and labor productivity,
it was not obvious that they had escaped from a deep structural crisis at the end of the 1980s that enveloped the entire
Soviet block from East Berlin to Vladivostok. It was a multi-dimensional crisis: economic, social, ecological, and
political. The Soviet system, due to its centrally planned economy and communist party monopoly, reached its capacity to
meet internal and external needs and challenges. Economies were in decline and only statistical manipulations hid its slow
economic growth or stagnation [Brzezinski, 1989; Rosati and Mizsei, 1989]. All of these countries had an “economy of
shortage,” which is a classical feature of centrally planned economies [Kornai, 1980]. For example, on the monetary side,
Hungary and Poland experienced open or hidden inflation representing internal disequilibria. On the external side, three
of the countries (Bulgaria, Hungary, and Poland) experienced serious problems servicing relatively high foreign debt. All
of the CEE countries inherited outdated economic structures dominated by the industrial sector (40–55% contribution to
GDP) with an excess of heavy industries (almost 50% of all industrial output), undeveloped services (25–35% of GDP),
and a large agricultural sector (20–25%). In addition, the dominant industrial sector supported by heavy price subsidies,
particularly for energy and raw materials, resulted in a huge waste of resources, 3–5 times higher energy intensity per
$1,000 GDP than in the EU and serious environmental pollution [Bochniarz, 1990].
The CEE10 had belonged on the uncompetitive Commecon (officially called the Council for Mutual Economic
Assistance, CMEA) market (60–70% of their foreign trade) and were lagging behind in their participation in world trade
and foreign direct investments (FDI). Their average share in world trade was about 50% less than their share in the global
GDP. These structural deficiencies were accompanied by functional and institutional deficiencies related to poor
management structures and the lack of managerial education of CEOs from giant state enterprises (70–90% of enterprises
were state-owned), a lack of basic market institutions such as private property rights, an independent judicial system,
codes of commerce, and capital market institutions such as stock exchanges, banks, insurance, and other financial
institutions.
Partial and halfhearted reforms, such as Soviet perestroika (restructuring), could not stop the economic decline. Economic
crises fueled growing social pressure and unrest. The most significant social unrest occurred in Poland in 1980–81, where
the example of over 10 million members of the Solidarity Trade Union inspired people in other countries. They demanded
not only higher wages and salaries, better supply of basic goods and services, but also the freedom to organize unions and
participation in decision-making processes.
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Simultaneously, the environmental crises started to become known to the public. First came the underground publications
of scientific reports, “white papers” [Komarov, 1980], and later after the Chernobyl disaster and the proclamation of
Gorbachov’s glasnost (openness) policy, in official media in the USSR and other countries [Glinski, 1996]. The declining
quality of the environment, since the beginning of intensive industrialization in the 1950s, threatened, not only the basic
ecosystem, but also contributed to growing mortality and morbidity rates in the most polluted areas. Life expectancy also
declined in the whole region [Bochniarz, 1990; Guminska, 1990]. Pollution in CEE greatly affected air, water, and soil
quality, creating severe implications for both human health and the economic well-being of the region. At the beginning
of the 1990s, Center for Nations in Transition (CNT) research showed that air pollution in this region was alarmingly
high. In comparison with Western Europe, $1,000 of GNP production yielded air particulates approximately 60 times
higher in CEE. Gaseous emissions of SO 2 and NOx in CEE were, respectively, 30 and 18 times higher in CEE than in the
EU. The quality of water (surface and groundwater) also deteriorated from the 1960s to the end of the 1980s in most CEE
countries. For example, in Poland, at the beginning of the 1990s, over 88% of major rivers were unsuitable for any form
of use; almost 10% were suitable for industrial purposes; only 2% were suitable for agriculture; and none of the
monitored rivers were potable. The state of the soil quality was not much better. In the most industrialized countries of
CEE, about 35% of arable lands were endangered. In some areas it became necessary to prohibit the cultivation of lands
for food production [Bochniarz & Toft, 1995].
It is obvious that poor air, water, and soil quality in CEE has had serious implications for human health and the economic
well-being of the countries within the region, as well as for the surrounding countries. Compared with the West, CEE
experienced significantly higher infant mortality rates, higher rates of cancer and respiratory illness, and lower than
average life expectancies [Levy, 1991]. Pollution also presented a serious threat to the biodiversity of the region,
particularly to the health of forests. About half of all the forests in CEE had been already damaged, to varying degrees, by
acid rain and their productive yield is shrinking. In economic terms, it was estimated that in the Czech Republic, Hungary,
and Poland, losses in the productivity of human capital and natural resources, due to environmental degradation, reached
between ten and fifteen percent of the gross national product. The other CEE did not look much better. Consequently,
poor environmental conditions in CEE became a serious barrier to development in the region at the beginning of the
1990s [Bochniarz & Bolan, 1991].
The economic, social, and environmental crises contributed to the emergence of the opposition forces in different forms
specific to the traditions of each country, from independent trade unions, to authentic opposition parties and powerful
NGOs such as Ecoglasnost in Bulgaria or the Polish Ecological Club (PKE). The political elites who gathered around
communist parties could not find appropriate solutions to the growing crisis within the existing ideological “menu.” It
became obvious that the existing system could not meet the expectations and the needs of its society. Change was
imperative.
Taking into account the complexity of the causes leading to these problems, at the end of 1980s, a systemic
transformation was needed in the Soviet bloc to escape from these crises. It was expected that transformation processes
would end the institutional and policy roots of the crises, stop the negative trends, and introduce new policies and
institutions that would initiate new development patterns. New development patterns would help to harmonize economic,
social, and environmental interests in the framework of sustainable development [Bochniarz 1991].
There were few positive legacies of the previous system that could be used for transformation. First of all, the education
system produced relatively well prepared graduates, particularly in mathematics and the natural and technical sciences.
However, based on the UNDP Report: Capacities and Deficiencies for Implementing Sustainable Development in Central
and Eastern Europe [Bochniarz 1992] presented at the Earth Summit in Rio de Janeiro in June 1992 there were problems
with the allocation of priorities in the education process – too much attention was devoted to the transfer of knowledge
and too little time was given to the development of appropriate interactive skills and attitudes. In addition, the Report
indicated severe gaps in modern management and neoclassical economics education. Further, the proportions among
basic groups of sciences – natural, technical, and social – discriminated against the last and kept the students isolated from
the Western social scientific mainstream. The Report also identified the severe lack of rudimentary market-economy,
managerial, and environmental knowledge in public sector decision-makers. All of these educational shortcomings
became painfully obvious during the institutionalization of the market economy and the implementation of new
environmental legislation in the CEE region.
Among other positive legacies that could be capitalized on by the new emerging system was the universal health system,
which was in the process of slow deterioration but still delivering sound preventive healthcare, particularly for children.
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The third huge resource was the still rich biodiversity of rural and protected areas that represented a crucial element of
carrying capacity and a potential for development of eco-industries in the future. Finally, the newly elected governments
enjoyed legitimacy for the first time after WWII, and huge social capital that they could use for the introduction of painful
reforms. In addition strong support and assistance from the West was an important resource on which to rely.
3. ASSESSING THE TRANSFORMATION PROCESS AND LESSONS LEARNED
Observed at the end of 1980s, rapid declines in economic and social development and the accompanying degradation of
many ecosystems in CEE countries created the challenge of stopping these negative tendencies as fast as possible. After
decades of political fighting and tough power transfer negotiations, the transformation started with the Polish
parliamentary election in June 4th 1989, and spread out to Hungary, East Germany, Czechoslovakia, Bulgaria and
Romania, by the end of 1989. The following year, the other countries followed those examples, including the USSR in
1991. The urgency of the economic, environmental, and social crises called for radical and quick reforms, which had to
include economic stabilization, market liberalization, and major institutional reforms to create a market economy
[Balcerowicz, 2000]. Despite differences between the countries, most of the CEEC10 initiated reforms quickly, revealing
the real status of their economies more clearly than ever before. One could observed how years of hidden inflation
changed to open inflation, hidden and chronic stagnation changed to open recession, hidden unemployment changed to
mass joblessness, and hidden austerity changed to visible poverty [Archibald et al, 2009]. There is no doubt that the scope
and intensity of the reforms shocked people in the CEE and generated considerable suffering until the governments
introduced a safety net. Price liberalization significantly altered the previous structure of consumption and production.
Fast market liberalization and monetary reforms, with the introduction of internal convertibility of national currencies,
moved the CEEC10 out of the non-competitive commecon market (CMEA) and into the competitive global economy. The
intensity, scope, and speed of these reforms were unprecedented.
Today after almost 20 years the situation is very different from the late 1980s. The CEE10 countries moved from an
industrial to a post-industrial structure with the service sector now generating 55–65% of GDP and a significant reduction
of the share of heavy industry. Between 70–80% of foreign trade is now within the EU and other developed countries.
The CEEC10 generated an average annualized GDP growth rate of 2% per year during 1990–2006 and secured
improvement in average GDP per capita of about 45% [Archibald et al 2009]. They also observed increased life
expectancy of over 3 years, and reduced infant mortality of about 50%. In addition, the CEE10 completed the introduction
of the basic institutional infrastructure for the environment, made visible progress in building technical infrastructure, and
reduced basic forms of pollution: particulate matters (70–80%) carbon dioxide (15–20%), sulfur dioxide (over 60%),
nitrogen oxides (35–40%), and wastewaters (35–40%) [Archibald et al, 2009]. These results were not matched by CIS, of
which many struggled significantly to reach their pre transformation GDP level, to stop decreasing life expectancy, and to
stop the deterioration of their environment [op. cit.].
Are these results of CEE10 Sustainable?
Let us first respond to the basic methodological questions related to the sustainability of transformation processes and
sustainability in particular areas (subsystems). The authors believe that Sustainability of Systemic Transformation means
that the process reached a “critical mass” and cannot be reversed in the foreseeable future, particularly:
 Achieved progress in building civic society cannot be turned to a dictatorship;
 An established market economy cannot be replaced by centrally planned or heavily regulated economy;
 Achieved improvement in basic ecosystems cannot be endangered by national policy;
 A country moved on the path of sustainable development.
Taking into account this definition of sustainability, the CEE10 achieved a significant level of sustainability, and the
transformation cannot be turned back.
More detailed answers call for additional studies on sustainability. Since the early 1990s, research teams, affiliated
initially with the CNT, at the Hubert H. Humphrey Institute of Public Affairs, University of Minnesota, conducted several
studies assessing the sustainability of transformation in CEE [Bolan & Bochniarz, 1994; Archibald & Bochniarz 1998;
Archibald et al, 2005, and 2009]. The most recent studies – 2005 and 2009 – used an econometric model of
Environmental Kuznets Curve (EKC) and trend analysis to assess sustainability. The EKC was named after Nobel price
winner Simon Kuznets for the relationship between growth in incomes and environmental quality, as measured by the
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level of pollution. According to the EKC hypothesis, environmental pollution or pressures initially increase with
economic growth [Panayotou, 1995; Andreoni & Levinson, 2001; Kukla-Gryz, 2004; Borghesi, 2008]. However, as
economic growth proceeds and incomes rise, the demand for improved environmental quality, and the ability to pay for
such improvements, increases as well, so that after reaching a critical turning point, when a certain level of income is
attained, there is a decline in environmental pressures or pollution [Grossman & Kruger, 1995; Selden & Son, 1994; Stern
& Common, 2001].
The CNT empirical studies supported the EKC hypothesis for air pollutants for six Central and East European countries
(CEEC): Bulgaria, Czech Republic, Hungary, Poland, Romania, and Slovakia [Archibald & Bochniarz, 1998]. Similar
studies, conducted by Vukina et al. (1999) focusing on the environmental impacts of transitions to market economies and
the composition of the manufacturing industry, found declines in energy intensity and related pollution in most of the
analyzed countries. The turning points for selected air quality indicators were attained much earlier than expected from
the literature on developed economies. Depending on the model used and pollutant studied, the turning point occurred
between $2,800 and $4,500 gross domestic product (GDP) per capita, while estimates for Western economies indicated
that pollution would not decline until after a per capita income of $5,000–8,000 was attained [Archibald & Bochniarz,
1998]. Subsequently, research extended to include the CEE10 confirmed the early results – for CO2, the level of income
at which emissions begin to decline was $6,727; for SO2 it was $5,826, and for NO2 the level was $6,108 [Archibald et
al., 2005]. All of these turning points were, again, below those observed in developed countries [Lucas et al., 1992].
The previous studies indicated the critical importance of examining the progress in economic transformation that took
place in the former communist countries in Europe by including measurements of institutional and structural changes in
the economy and measures of liberalization process from the start of transformation. Indicators for these transition periods
include price liberalization, openness in trade and investment, and rapid small and medium enterprise privatization
(EBRD, 2001), in addition to institutional reforms and environmental and other policies designed to promote
environmentally sound restructuring [Archibald, et al, 2006].
The most recent publication, focused on verification of EKC for water pollution, measured by BOD indictor, found the
turning point at about $6,000 (when Slovenia, with the highest GDP, was excluded), and, for Poland, at $3,400
[Archibald et al., 2009]. This was also below the observed level of GDP in advanced economies.
The same publication summarized the debate on sustainability and sustainable development as an attempt to secure intergenerational equity, addressed by economists in the 1970s [Solow, 1974; Hartwick, 1977], by requiring non-declining
resource endowment. The United Nations World Commission on Environment and Development report “Our Common
Future” brought the core concept of sustainable development – “development that meets the needs of the present without
compromising the ability of future generations to meet their own needs” [Brundtland, 1987, p.43], to the international
community. In operationalizing the sustainable development concept, two major approaches appeared: (i) optimizing
wealth in the form of non-declining income per capita [ Pezzey, 1992; Schuh & Archibald, 1995], and (ii) the capitalmaintenance approach, requiring non-declining total capital [World Bank, 1997]. Due to many controversies in defining
wealth in different cultures, and finding appropriate discount rates for valuing resources, services, and non-tangible assets,
as well as for conceptualizing intergenerational equity, the authors prefer to base their analysis on the capital-maintenance
approach, complemented by several other indicators, measuring either changes in wealth (e.g., GDP per capita), or in
capital endowment (e.g., different types of pollution causing degradation of capital stock). Sustainable development exists
when there is non-declining total capital (man-made, natural, human, and social), over time, with special protections for
critical/unique natural capital.
Despite the advantages of the capital-maintenance approach, valuation of environmental, social, and other forms of
capital remains a methodologically challenging task and is further hampered by lack of relevant data for many countries.
However, there are some indicators that measure changes in total capital and that could be used as proxies for
sustainability. One of the more recent and widely used measure is the Genuine Saving (GS) indicator (Hamilton, 2000)
also known as Adjusted Net Savings (ANS) and used by the World Bank since 1999. The ANS is derived from national
and environmental accounting principles and estimates a country’s true savings rate by adjusting gross savings for fixed
capital depreciation, depletion of natural resources, pollution damages, and investments in human capital (World Bank,
2007). The indicator tracks changes in the three different types of capital – man-made, natural, and human (Bolt et al.,
2002, p.5–6). According to the ANS indicator the six CEE10 countries, which were classified as early liberalizers (Czech
Republic, Estonia, Hungary, Poland, Slovakia, and Slovenia) [Archibald op. cit.] have succeeded to produce ANS rates of
about 10 percent throughout the recording period and closely tracked the EU15 countries. For both groups (EU15 and
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CEE) the annual level of ANS was approximately 10–11 percent since 1993. They sustained approximately the same
patterns of behavior toward the environment and natural resources as the economically advanced EU15. Both invested
about 10% into their future. The other CEE and CIS did not perform. The six countries labeled non-liberalizers
(Azerbaijan, Belarus, Tajikistan, Turkmenistan, Ukraine, and Uzbekistan) started out with the highest ANS rate of nearly
30 percent of gross national income, but this advantage evaporated quickly and since 1996 their savings have been
negative, pointing to an excessive reliance on natural resources and the low production efficiency of these economies. The
reset of CEE and CIS called late liberalizers have also recorded positive ANS since 2001 (between 3–6 percent per
annum) after a period of negative net savings between 1994 and 2000. Higher oil and natural gas prices certainly had a
positive influence on ANS performance but did not reduce depletion rates of mineral resources and/or pollutant emissions
very much. The ANS analysis for non-liberalizers does not give rise to optimism because the negative trend suggests that
income gains in the non-liberalizers are not sustainable in the long-run [Archibald et al., 2009].
What are the lessons learned?
First Lesson: The CEE10 proved that liberalization in the original sense (liberty), including democratization of
political systems, is crucial for sustainability of transformation. Their newly elected democratic governments,
following both public opinion and research, did not sacrifice the environment for economic growth, and did not abandon
reforming environmental policies and institutions at the beginning of transition. They integrated the environmental
dimension into very liberal economic and social transformation process, with limited resources, and other urgent and
competing needs and priorities. Their governments, despite their initial instability, addressed, not only the most urgent
environmental issues, but also contributed to the decentralization of power and cost-effectiveness of the proposed policy
solutions.
Second Lesson: The CEE10 used market forces within the appropriate institutional setup they introduced at the
beginning of transformation, which better contributed to sustainability than regulations. At the very beginning of
transformation the CEE10 quickly phased out price subsidies that caused environmental harm and provided serious
market distortions. They institutionalized the polluter pays principle (PPP) as much as it was possible by introducing
economic instruments from user and pollution charges through product charges to emission trading schemes. This way
they created significant endogenous financing sources of environmental investment and a fast developing market for
environmental goods and services. Institutionalization of PPP led in turn to principal changes in CEE environmental
policies, from the inherited predominantly command-and-control (CAC) to a market-based-mechanisms (MBM)
approach.
Third Lesson: The CEE10 took advantage of the environmental crisis and treated it as a development opportunity.
This way the CEE10 converted their environmental liability into an asset, represented, among others, by fast development
of the large environmental market: about $12 billion USD at the beginning of this century [ECOTECH, 2003]. The MBM
and strong enforcement of the necessary environmental regulations contributed to development of environmental
entrepreneurship, with over 8,000 firms in those countries. This way the CEE10 indicated that there is a possibility of
acceleration of environmental investment without imposing Best Available Technology – BAT (e.g., wastewater plants).
This investment led to the creation of over 600,000 jobs in a dynamic environmental sector that replaced polluting and
heavily subsidized industries. The CEE’s deteriorated environment boosted the domestic production and specialization of
high quality environmental goods and services, not only to meet their own needs, but also to export, leading some of the
largest polluters (e.g., Czech Republic and Poland) to become net exporters in this emerging industry. MBM and a free
media, which informed the public about the environmental issues, led to significant changes of the producer and
consumer behavior. For example, almost all Polish regional governments passed legislation prohibiting planting
genetically modified plants (GMO) in order to conserve endogenous species. The CEE10 governments, despite the strong
competition for development resources for industrial and social needs, were able to significant increases in the share of
environmental expenditures in GDP (from av. 0.5% to about 2%). This way, the CEE10 showed the case of practically
mobilizing their resources in achieving significant progress toward sustainability, and decoupling the economic growth
from pollution pressure.
Fourth Lesson: CEE10 are also among those countries that effectively used available foreign assistance for their
transformation and their progress toward sustainable development. The scope of challenges facing the newly
emerging democracies in CEE at the beginning of transition was significant and met with the generous support of
numerous public and private donors. The CNT activities in CEEC, which started at the very beginning of transformation
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in 1989, serves as a small example of a huge stream of resources flown to those economies. Between 1989 and 2006, the
CNT delivered over 20 large projects valued over $37 million to over 44,000 participants, who raised or attracted over $3
billion investments in seven countries [Bochniarz, 2006].
4. EMERGING CHALLENGES FOR PUBLIC ADMINISTRATION
Despite their achievements, the CEE10, as the rest of the world, are facing similar challenges and threats for continuing
their path toward a more sustainable future. The seven most important challenges for the CEE10 governments and their
nations are:
•Converting the financial crisis and the economic recession into development/reform opportunities. This universal
challenge is particularly difficult for small countries when global investors quite easy affect their currencies or investment
portfolio stability. They should develop more creative strategies to cooperate closely with EU financial institutions and
joint the EURO-zone as soon as possible.
•Taking advantage of Climate Change as a business and restructuring opportunity. So far most of the CEE10 has
taken defensive strategies to protect their existing industries, particularly energy sector which is heavily dependent on
coal resources. This strategy should be well understood as a survival strategy only, which will not produce any
sustainable prosperity. For that reason the CEE10 should balanced this survival strategy with an innovative strategy
taking advantage of the fast developing carbon neutral industries. Their own experiences from the early stages of
transformation should continue inspiring them and serve as role-model for the other countries.
•Reforming the political system to improve stability, accountability, and responsibility of individual politicians,
and avoiding dangerous populist and nationalist tendencies. There are still significant improvements needed to meet
the benchmark of the politically well-functioning, economically competitive, and environmentally friendly nations such
as the Scandinavians.
•Participating more actively in EU governance. There are many competing tendencies in the EU these days, with
strong protectionist calls fueled by upcoming local, regional, and national elections. The CEE10 should play a more
active role in looking for innovative solutions and avoid the protectionist tendencies within the EU that could expand the
economic recession and waste the huge gains in liberalization originated by the Uruguay Round less then two decades
ago.
•Bringing new dynamism and creative thinking to EU. The CEE10 should argue – based on their own transformational
experience – that the defending the old system does not make sense. They succeeded because they liberalized and did
NOT protect their economies in the 1990s. The lessons they and other CIS learned from the protectionist and isolationist
policies of the 1970s when they resisted the consequences of the oil crises and protected the existing (and already
outdated) economic structure with 5–3-times higher energy intensity should be appealing to their partners in EU. Today’s
crisis requires new, creative thinking because these challenges are new.
•Capitalizing on rich CEE biodiversity within EU and worldwide. The CEE should further boost the eco-industry and
take advantage of their inherited rich natural capital. So far their responses to attractive EU program NATURE 2000 are
weak and defensive.
•Further investing in human and social capital (intellectual capital). Despite achieved progress, there are further
needs to build more sophisticated human capital to respond effectively to the globalization challenges. They also need to
learn how important social capital is in modern economic development, as demonstrated by the most competitive
economies. Unfortunately the CEE10 and CIS are lagging far behind the Nordic benchmark.
The schools of public administration should take into account the general challenges above and translate them into action,
which will help their governments design appropriate institutions and policies to respond to the global change. The
global-level crises, including the economic, environmental, and social crises create an unprecedented challenge for
academia. It is tasked with working to understand the crises and, subsequently, propose recommendations to move our
communities and economies toward a sustainable path of development. This triple crisis cannot be resolved with
traditional knowledge, technologies, institutions, and policy instruments. This is a unique opportunity for academia,
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particularly for the schools of public administration, to contribute to the change. Finding solutions to the crisis will
require significant innovations, not only in technologies, but also in institutions and policy measures. It will have to
generate new knowledge and apply it to teaching and outreach. It will require new methods of conducting research,
including action research, and new approaches to teaching and outreach, involving transatlantic and international mutual
understanding, where the interactive process of delivery creates a learning community.
There is no alternative to the academy for developing modern human capital (advanced new knowledge, high quality
skills, and collaborative attitudes), which is the most critical component of the knowledge-based economy of the 21st
century. For that reason, human capital is the most important component for societies to overcome recession and enter the
classical concept of economic growth, set forth by Nobel Prize winners Becker (1996), Lucas (1989), and Schultz (1993),
who indicated the possibility of increasing returns on investment in human capital in deficient areas.
A fast response by academia to deficient areas, particularly those at the roots of the global crises (e.g., energy,
transportation, governance), with new knowledge, skills, and policies, should encourage the innovations that will lead to
recovery and sustainable economic growth. It is worth noting that human capital, like other forms of capital, requires
continuing re-investment in its renewal due to the depreciation and obsolescence of knowledge and skills caused by rapid
technological progress, globalization, and new scientific discoveries [Becker, 1996; Bochniarz & Bolan, 2004]. The
crises, as well as technological product and process innovations, challenge existing human capital, produce large layoffs,
and require new knowledge and skills. Continuing education, particularly an executive education, is one of the responses
to these challenges. This is a great opportunity for academia to offer new programs, not only degree programs, but also
initial, short executive programs and post-graduate lifelong learning courses to meet the immediate needs of government
and business by equipping graduates with new human capital.
The recent research on transforming economies in CEE10 has confirmed that its unprecedented investment in human
capital, particularly in economics and management education (a 17 time increased in Poland during last 15 years), was the
single most important factor for successful economic growth [Archibald et al, 2009]. Universities will need to move
deeper into lifelong learning programs to deliver knowledge to their primary industry stakeholders. The current global
economic crisis calls for mobilizing factors that will start to generate economic growth and bring innovations,
entrepreneurship, and visionary leadership – converting disadvantages into advantages and weaknesses into strength. This
call to mobilize is the unquestionable role of academia.
In addition to producing new human capital that is deficient in national economy, academia needs to produce social
capital. As many authors indicate, there is no smooth development without social capital, because it links human and
institutional capital together. Many scholars indicate the critical role of social capital, including American Nobel laureate
Becker (1995), Europeans, such Balcerowicz (1993) and Havrylyshyn (1980), and international scholars, as Woolcock
and Narayan (2000). Since social capital is associated with institutions, formal, or informal, very often it is called
institutional capital. Social capital, however, involves more than institutions: it involves an attitude change, which is
expressed by social legitimization and trust, identification and loyalty, respect, and attachment [Bolan, 1992]. For such
reasons, it was critical for all post-communist countries to invest in human and social capital, and this way, overcome
initial decreases in GDP – Gross Domestic Product, experienced at the beginning of transformation.
This opportunity for academia to be an active agent of change is great, but not easy to implement. The following
challenges are ahead:

First, university leaders have to convince their traditionally conservative faculty members that they
need to move out of their comfortable “ivory towers” and challenge their credentials by conducting
research on the emerging global problems, to propose solutions and apply them to educational processes
and outreach.

Second, academic leaders need to convince governmental representatives and policy makers that they
can offer solid science-based policy as solutions to the current crises. The last decades of governance in
the U.S. were not favorable for science-based policies, and the current administration will benefit
greatly from successfully implemented science-based policies in the EU. In addition, due to growing
unemployment, there are emerging protectionist tendencies in the U.S. (“Buy American”), and in EU
countries (e.g., “French first”), that are dangerous, because they could further deepen and prolong the
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global recession. There is nothing wrong with consumers buying local food or products, but a national
policy of discrimination against foreign products would be a sign of a radical departure from the basic
recommendations of the GATT Uruguay Round (1986–1994), which contributed to worldwide
liberalization, accompanied by unprecedented economic growth, and the reduction of poverty for
billions of people, over two decades. The first victims of such protectionist policies would be the
world’s poorest countries.

Third, the large public resources devoted to the crises (e.g., the U.S “stimulus package”) raise the issue
of governmental performance, accountability, effectiveness, and transparency to avoid huge wastes of
resources and widespread corruption.

Fourth, university leaders need to bring on board business leaders, through a variety of means, to get
them involved in identifying the challenges facing their companies, communities, and nations, and
collaboratively work to find appropriate solutions.

Fifth, the complexity of the crises requires the participation of leaders from the NGO sector in both
problem identification, and the search for appropriate strategies, to move out of crisis mode. The NGO
sector is potentially a great crisis-related problem solver, offering solutions that could be more costeffective and socially acceptable than those offered by government or business.
Business, governmental, and NGO leaders possess immense practical knowledge that, once it is revealed through research
and education, can contribute to a better understanding of the roots of the economic and environmental crises, and help
find the best practices to overcome them. Having the diverse opinions of representatives from the three sectors creates an
academic environment conducive to finding scientifically appropriate and socially legitimate solutions. It is, however,
exceptionally difficult for academia to move out of its traditional “comfort zone” and undertake a test of its own
competency on unchartered waters. Only the strongest schools, with visionary leaders, will enter this new territory, and
risk their established reputation, by experimenting with action research and innovative delivery.
At the same time, it is not quite usual for local administrations and governance leaders to turn to academia, or business,
and NGOs, for finding solutions and assistance in strategizing for toward community transformation. The typical
arrangements of public-private partnership does not include academia in most cases. This is a serious mistake – taking
into account the strategic role of academia in building human capital, which could offer high returns on investment. This
is particularly critical for CEEC, which would like to join the knowledge-based economy of 21st century. This is also
critical in the time of the triple crisis (with its global implications) to overcome the predominantly domestic orientation
governing motives of the majority of public administration, business, and civil society leaders.
This situation must be remedied, because a domestic orientation prevents the public sector and NGOs from learning the
most effective and efficient ways of responding to the challenges of globalization implemented by other governments or
municipalities abroad. Isolation and preoccupation with domestic approaches adversely affects their ability to respond to
the globalization’s challenges, in terms of policy and institutional design. The final victims of such an approach are the
inhabitants and industries located under the jurisdiction of such governments. An isolationist approach, acting as if an
area is alone or preeminent, can seriously endanger the competitive position of nations, regions, and cities.
Business schools have a tradition of responding to stakeholder concerns. Schools that focus on public affairs and
administration should follow them and break their tendency to isolate and focus on domestic policy and institutional
design by making similar investments in upgrading faculty knowledge and curricula to meet global challenges.
5. POSSIBLE STRATEGIES
The proposed strategies capitalize on over 17 years of experience from the CNT at the University of Minnesota,
developed with over 100 universities, and schools of business and public administration, in eight CEE and CIS countries.
These experiences are continuously expanding, by our CEE and CIS partners, as well as in the U.S., particularly at the
Evans School of Public Affairs at the University of Washington.
9
The CNT has conducted 20 programs – from research and institutional and policy design, to capacity building for all
three sectors of the national economies in eight CEE and CIS countries. Particularly important were CNT training and
education projects focusing on human, social, and institutional capacities. Thanks to strong bilateral and regional
cooperation, all of these, mostly multi-year projects, resulted in significant impacts on the policies and design of
institutions in the region. There were also noticeable changes in the behavior of academia, business, civic, and public
sector leaders who participated in the projects [Bochniarz, 2006].
The most recent focus of CNT activities was the implementation of the Microeconomics of Competition (MOC) program
developed by Michael Porter from Harvard Business School (HBS), in Minnesota state, and then for Poland (University
of Warmia and Mazury in Olsztyn), and finally in Washington state. There were also successful information and
promotion activities that resulted in bringing six additional universities from Poland, Czech Republic, Serbia, Romania,
Bulgaria and Hungary to the MOC affiliated universities.
The proposed strategies should focus on human and social capital building, mainly for the public and non-profit sectors,
which are lagging behind of the business sector flourishing over CEE and CIS regions, with hundreds of MBA and
executive programs. In order to achieve the basic objectives, the business leaders should be also included in the
classrooms to interact with representatives of the two other sectors to develop a better understanding of different roles of
each other in the economic development process and to build the necessary trust, respect, and network – social capital – to
facilitate cooperation for local/regional/national prosperity.
The proposed strategies for schools of PA should capitalize on resources already invested in developing the new social
and institutional capital necessary to meet the EU Acquis Communautaire, in CEE10 and other CEE and CIS interested in
strategic association with EU. This CEE investment was necessary, but not sufficient to overcome the current triple crisis.
The leaders from three sectors should be aware that the investment in human and social capital is not over. A good
argument would be to show them the performance of a particular country ranked by the World Economic Forum Global
Competitiveness Report 2008–09. Despite the progress achieved by most of them, there is a long way to reach the level of
the top ten world leaders, among them are three Scandinavian countries. One of the reasons for the high performance of
the top ten countries is, predominantly, the development policy concept based on industrial clusters.
Clusters, an economic phenomenon of geographical concentration of certain industries, have been observed for centuries,
and methodologically explained in different schools of economics – beginning with Alfred Marshall’s pioneering work:
Principles of Economics, of 1890. A half-century later, Joseph Schumpeter admitted the benefits of industrial groupings.
Progressing globalization and the emergence of the knowledge-based economy challenged the significance of
geographical location in contemporary economies, and inspired new research on competition theory at the end of the
twentieth century. As a result of many years of studies, analyzing many countries, and involving large numbers of
academic, governmental, and business organizations and individuals, there is a monumental study by Michael Porter
(1990) on “The Competitive Advantage of Nations”. The study revealed the modern theory of competition within a
nation, region, and/or municipality, and explained the cluster phenomenon [Porter, 1990]. His later work (2008) “On
Competition” contains a special study devoted to cluster and competition (Chapter 7).
The EU is investing huge resources in regional development – over 226 billion EUR over the last seven years and even
more – over 308 billion EUR – are planned for 2007–2013. The question now is how to increase returns and improve the
competitive position of the EU, as the whole region, as particular member state, as well as business and improving living
conditions in the poorer regions. For that reason, the schools of PA should notice that one of the most advanced concepts
of policy direction is focusing on building human and social capital for industrial regional and local clusters. This is a
chance which requires creative and visionary leaders, and we hope that the CEE schools of PA are full of them.
The schools of PA in CEE and CIS should take advantage of the over 30 universities and business schools already
affiliated with HBS, and by developing partnership relations, design executive programs for three sector participants to
develop, with them, strategies to escape the triple crisis, find new opportunities from development of the region or firm,
and secure the prosperity of local people. The well-developed methodology of MOC could be easy adapted to the
particular conditions of the school of PA.
Since the proposed strategies will require developing new projects and partnerships, there are few lessons learned from
the CNT involvement in CEE & CIS transformation and cooperation with US and EU universities.
10
At CNT we based our work on the following principles:
 Designing and implementing projects is a great learning process, which offers important lessons for continuous
improvement in new project design and implementation; lessons from the most successful projects are equally
important as lessons from failed or deficient projects;
 The best theories and concepts are usually simple and practical, but cannot be mechanically applied in every
environment or country;
 The most effective and sustainable methods of applying new concepts to the local conditions are participatory
methods in designing and implementing all programs, activities, and performance evaluation processes;
 Building sustainable local capacities, partnerships, and cooperation should be included in project design, and
should start from the beginning of the project.
With respect to the projects of assistance through training and education, we point out the importance of:
 Securing initial commitment of academic leaders to a proposed program, through partnership relations;
 Getting major stakeholders involved in designing curricula, establishing prerequisites, and establishing precise
quality control and monitoring systems;
 Carefully selecting faculty;
 Providing faculty with intensive training and lasting professional advising/mentoring relationships;
 Jointly developing teaching materials;
 Encouraging implementation of new knowledge and skills by providing competitive mini-grants for joint
curricula, research, and publication initiatives.
So, from our experience, the most important element was partnering with major stakeholders in order to meet their
expectations and build mutual trust. Honest partnering was the most critical element in this process, requiring time and
patience in developing a shared and inspiring vision.
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