Download Governments and City Community Organizations: from Vertical Control to Horizontal Mutuality

Governments and City Community Organizations: from Vertical
Control to Horizontal Mutuality
Investigation based upon the Perspective of Transaction Costs∗
Xiqiang Chen
School of Economics & Management, Southwest Jiaotong University, ChengDu 610031;
School of Business, Guangxi University, NanNing P. R. China, 530004
，
Abstract: The existed literature in discussing the relations between city community organizations and
governments are mostly from the point of view of social relations, neglecting the impact of the
organizational cost. In fact, there is an obvious issue of transaction costs in the connections between
organizations. Transaction cost is an important variable influencing organizational division of labor. This
paper approaches the possibility and achievability of conducting division of labor and cooperation
within the bureaucratic system of city community organizations and governments from the angle of
transaction costs, puts forward the relations of division of labor and cooperation between city
community organizations and governments and the entrusting agency relations arising thereby. The
basic pattern of entrusting agency between city community organizations and governments is put
forward in this paper.
Key words: City Community Organization, Community Government, Division of Labor and
Cooperation, Entrusting Agency Relations, Pattern.
1. Introduction
It is generally considered that community means the social community, which is composed of the
people living together in a certain region. The city community organization discussed in this paper
follows the traditional formulation in academic circles, means the community organizations at the basic
level, which takes the resident’s committee as the unit in the city. From the middle of 1950s to the early
1980s although the sub-district offices and the residents’ committees in the cities of our country
experienced a winding development and changed repeatedly in the respects of concrete organization
forms, structures, and functions, etc., they have always been an important component part in the society
management system of the cities in our country. They are an organizational extension to the community
government’s administration over the city community. Since the 1990s, the research on city community
(organization) theories has gained concern not only from the practical fields but also the favor of the
academic circles. City community (organization) theories have become a new trans-discipline research
field involved with management science, economics, sociology, politics and law, etc.
In the respect of overseas research, it is Tonnies, F., the German sociologist, who first advances the
concept of community. Tonnies’ community is an original one. It is formed in the ties of geo-links and
consanguinity. It is an enlarged relationship between family and religion. The modern community
derived from the post-industrialized society differs from the traditional community. It is a social
organization, which relates the division of labor of society to the contract and composed of different
quality population with different purposes and different value orientations. Farlinton, F., an American
scholar, advanced a community development theory to reconstruct cohesion of the community
organizations because of the weak ownership feeling and cohesion of community organizations in the
industrialized society. His theory spread very quickly in the United States, United Kingdom and France.
The United Nations put forward “the social development on the basis of community” in 1948, and
passed through the 390D Proposal in 1951. The Proposal decided to push forward the economic
development and social progress in the developing countries through community welfare center at first.
In 1952, The United Nations established “Community Organization and Community Development
∗
The project is supported by National Natural Science Foundation of China (NSFC No. 70261001).
1
Group”, and established Social Development Group under the United Nations Social Bureau in 1954. In
the 1970s, the world interest in the community development weakened. However, after the 1980s the
people’s cognition of community development became rich again. The European scholars took the lead
to set off great mass research fervor for community development of post-industrialized society. Hence a
lot of research achievements produced.
In the respects of frontiers discussed in domestic research at present, there is quite a lot of literature
discussed the issue on mutual relationship between governments and community organizations. Some
literature discuss the relations between city community organizations and governments from the angle of
studying community construction (Xue Bing 2002 Wang Sibin, 2001); Some literature, on the basis of
discussing the changes of social administration system at the basic level of our cities, position the
functions of community organizations from the process of dividing functions of different main
managements (He haibing, 2003; Zhang Lirong, Li Li, 2001; Ma Yili, Sheng Guosheng, Song Xiandong,
1996; Li Xinchun, 2001); Some literature analyze the functional position of city community
organizations from the angle of developments and changes of the governance structure of the city
community (organizations) (Feng Ling, Li Zhiyuan, 2003; Wei Na, 2003); Some literature discuss the
positions and roles of the community organizations on the basis of introducing the foreign theoretical
analyses concerned. Among these theoretical studies, the more prominent one is the interactive model
theory on the relations between communities and social environment (Liu Jitong, 2003; Yu Jianxing, Wu
Yu, 2003); There are still some literature defining the functions and roles of city community
organizations in discussing other social affairs (Yang Tuan, Ge Daoshun, 2002; Yang Tuan, 2001; Yang
Tuan, 2002). As for what causes the changes in the relations between governments and community
organizations, the existed literature investigate the causes more from the angle of social relations, very
few involve with the issue of organizational cost.
Under the social background that the economic system and administrative management system have
transformed their functions in the meantime, great changes have taken place in the identity management
characteristics of enterprise (unit) organizations and community organizations. The community
organizations administered directly or indirectly by the governments are identity governance in
administration; community organizations have the demands of their own interests in the market,
therefore, they also possess the features of contractual governance. The results are that identity
governance and contractual governance are in conflict. Market reform has resulted in reallocation of the
resources. The restructuring of social structure and social organizations is surely a process of the mutual
games played between the existing governments and community organizations, a process that realizes
the division and the integration of functions of organizations. In the course of organizational division
and integration, an important variable involved is the issue of transaction costs between the
organizations. We will investigate the relations between governments and community organizations
from the perspective of transaction costs in the following discussions.
， ；
2. The Analyses of the Entrusting Agency Relations between Governments and
Community Organizations Based on Transaction Costs
As an extension to the community governments of the communities at the basic level, the governance
structure of our original organizational management of communities is an organizational management
system characterized by the vertical division of labor. It establishes a relationship of the higher level and
lower level between the different roles of governmental organizations and community organizations
through designing the community governments and the power levels of their functional departments. We
call it as a governance structural model of community organizational management based on the
bureaucracy power relations. This kind of community organization governance structure, in fact, reflects
the official and semi-official system attributes that the community organizations have. The mixture of
governmental attributes and autonomous attributes of the community organizations is inclined easily to
form the leading government nature in positioning community targets. Government domination will
distort the value orientation of community organizations easily, which is manifested mainly in the
blurred positioning of roles; Community organizations only implement the tasks assigned by the higher
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governmental organization passively, it becomes the supporting tier, operating tier and implementing tier
of the work of government departments at various levels (He Haibing, 2003). Their relations are shown
in Figure 1.1 below:
Community
Government
Community
Government
Community
Residents
Committee
Community Government
Agency
Community Residents
Committee
Social Economic Environments
Figure 1.1: The governance structural model of community organization
management based upon the bureaucracy power relations.
Viewing from the angle of transaction costs, this kind of organizational governance structure of
management tiers contains obvious transaction costs. Here we apply the definition of Williamson’s
transaction cost, which means, “the comparative costs incurred in planning, coordinating and
supervising in order to finish the tasks under different governance structures” (Williamson, 1989). The
analytical framework of transaction costs is initially used to discuss economic issues. North is the first to
advance the idea that uses the analytical framework of transaction costs to study political (political
organization) process (North, 1990). In the governance structural model of community organizational
management based upon the bureaucracy power relations, some assumptions and background conditions
involved in transaction cost analytical framework may influence the functioning of the bureaucratic
organizations.
Suppose there are n tiers in the managements of a community government, the top tier is a community
government. The bottom level is made up of m community organizations. If there are x routes linking it
with a next organization in each community government, then we may get the following formula:
M = X n , orX = M 1 / n
(1.1)
In the formula, M represents the standard of division of labor in the organization and the numbers of
organizational tiers in the community government. The number of the organizations at No. n tier is 1,
……, the first tier is
No. n − 1 tier is x ,
at No. i tier is Oi :
X n−1 . Generally speaking, the number of the organizations
Oi = X n −i
(1.2)
Suppose the total organization number of all tiers is O, then:
n
O = ∑ Oi = 1 + X + X + ⋅ ⋅ ⋅ + X
2
i =1
n -1
M −1
1− X n
=
= 1
1− X
M n −1
(1.3)
In the equation, when M is fixed, N decreases as X increases, O increases as N increases. Namely,
when the number of organizations is given, the management tiers decreases as the linking routes
increase, the organization size will become larger as the management tiers increase.
Suppose TC stands for the total average transaction costs of organizations, it includes two parts: one
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is FB, the minimum costs of bureaucratic organizations. The other is VB, the transaction costs related to
the organization scale, it varies with the changes of organization size.
VB = ε ⋅ O = ε ⋅
In the equation,
increases.
ε
M −1
(1.4)
1
n
M −1
is a parameter, represents the degree of organization size. VB increases as N
TC = FB + VB = FB + ε ⋅
M −1
1
(1.5)
M n −1
In the equation, TC is the total average transaction costs of organizations. Since FB, as the minimum
costs of the bureaucratic organizations, does not vary with the changes of organization size, while VB is
the plus function of N. Namely, the increase of the number of the organizational levels will increase the
transaction costs related to the number of organizations.
Can the transaction costs be reduced in the already existing bureaucratic governance structure? The
answer is negative. First, in the bureaucratic organizations, as a contract of the analytical units, one party
is the government and its administrative organizations; another party is the grassroots community
organizations. The contract is a transactional undertaking of income for the implementation of
government policies or decrees and the community organization’s fulfillment of the tasks assigned by
the governments. Since there are several parties in a side of the contract relations, very few political
contracts are the one between the two definite contractors; meanwhile, since the contents of the political
contracts are more ambiguous than those of economic contracts, they have a great space for
interpretations. The contracts of bureaucratic organizations are therefore more complicated than those of
economic organizations. Thereby the transaction costs will increase. Second, the bureaucratic
organizations may belong to governance structure. Governance structure is characterized by various
agency relations. The agency relations in the bureaucratic organizations hereof are obvious---community organizations as the agents for community governments who are responsible to the
governments on the surface, but the right chain in reality is not clear. The cross mixing of the respective
duties of the government and community organizations has led to the difficulty in coordinating the
bureaucratic organizations, increased transaction costs. Third, in the bureaucratic organizations, owing
to the asymmetry of the information in carrying out the policies and the limited rationality produced by
the insufficient knowledge of the people in the organizations, political contracts are more imperfect than
economic contracts. Thus the settling mechanism of disputes is bound to lie in the process of political
games, which also will increase transaction costs. Fourth, in the bureaucratic organizations, the special
use of assets shows that the economic resources which the community organizations obtain when they
are carrying out the public affairs demanded by the community governments are requested to be fully
used in the activities of public affairs, can not be diverted to any other purposes. Since the agency
relations in the public fields is more complicated than that in the economic fields, for example, there are
phenomena like multi-agency, vertical agency, horizontal agency and common agency, etc., in the public
fields there still exists opportunism propensity, the agency relations in the public fields usually can not
be used to supervise and encourage the contracts as the economic agency can, instead it depends more
upon the straighter instruments undertaking and restraint, while the undertaking will incur cost and
increase the transaction costs between organizations.
Hence we can deduce that in order to reduce the transaction costs in the organizational operation and
raise the operational efficiency of organizations, we can achieve these objectives by means of
organizational division of labor. The already existing research achievements also prove that the lower
the coefficient of transaction costs is, the higher the standard of the division of labor is; conversely, the
higher the coefficient of transaction costs is, the lower the standard of the division of labor is. It is of
great significance of how to lower the transaction costs, especially the internal costs for the division of
labor (Yang Xiaokai, Zhang Yongsheng, 2003).
To sum up: when the government possesses the absolute social resources, and thereby possesses the
absolute monopoly power, community organizations can be in the subordinate status only, at this time
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community organizations are completely under the great monopoly of the government. The government
at this time is a multipurpose government whose functional governance structure is shown as a ruling
pattern, which is a vertical controlling pattern. With the development of market economy and the
continuous splitting in the social division of labor and social functions, the main part of social resources
will gradually have the characteristics of complexity, pluralism and diversity, community organizations
will develop accordingly. When the size of community organizations develops to a certain degree,
various forms of community organizations may possibly have a strong desire to demand partial
autonomy or complete autonomy in order to satisfy their respective demands of changing their internal
functions, thus making the relations between various organizations and governmental organizations
become the interactive relations of division of labor and cooperation from the original subordinate
relations. Viewing only from the relations between community organizations and government, building
the social management system at the basic level in the cities under which community organizations
interact with governments means the relations between the city governments at the basic level and
community organizations needs a fundamental change from the past vertical administrative subordinate
relations between community organizations and governments to the horizontal, organizational division
of labor and cooperative relations between community organizations and governments. Their relations
are shown in Figure 1.2 below:
Social Economic
Environments
Community Residents
Committee
Community
Residents
Committee
Community Government
Community
Government
Social Economic
Environments
Community
Government
Community Government
Agency
Entrusting Agency
Relationship
Community
Residents
Committee 1
Community
Residents
Committee2
……
Figure 1.2: The governance structural model of the bureaucracy community organization management
based upon the co-existence of vertical division of labor and horizontal division of labor
3. Model Analyses of the Entrusting Agency Relations between Governments and
Community Organizations
The transformation of regulatory organizational governance structure of the community organization
management is realized through the above organizational integration. The significance of this kind of
transformation lies in that community organization as an independent organizational subsystem is
separated from the internal governments, the mutual relations between community organizations and
governments is no longer a relationship of order and control, instead a contractual relationship. In other
words, the relation they established is an internal market relationship. Theoretically, this kind of
contractual relations established in the internal market is beyond the traditional administrative
governance structure of the bureaucratic organization management, it makes the governance structure of
community organization management become more flexible, easier to coordinate with other
organizations, easier to meet the needs of the community residents, thus easier to fulfill the development
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goals of community organizations.
However, in this kind of new relations of the internal market division of labor, the community
organizations assuming the governmental functions of the community management at the basic level are
still an identity governance in administration, and obtain resources by means of their identity; under the
condition of division of labor, community organizations have their own interest demands, so they also
possess the features of contractual governance. As a result, the dilemma conflicts bureaucratic
organizations faces are the conflicts between the identity governance and contractual governance.
Identity governance represents the government’s control and allocation of resources, reflects the
“organized dependence” of community organizations upon the governments, it is necessary for the
community organizations to build good relations with governments to obtain the resources; while
contractual governance reflects the community organization’s assertive demands. Therefore, the conflict
management mechanism is a coordinative relation between the assertiveness and cooperativeness. The
conflict resolving mechanism is a self-settling mechanism by the disputing parties. The strategies for
settling the conflicts are different because of the different orientations of the disputing parties. There are
usually five different strategies, which are shown in Figure 1.3 below:
Contractual
Governance
Competitive
Strategies
Cooperative
Strategies
Compromise
Strategies
Avoidable
Strategies
Adaptable
Strategies
Identity Governance
Figure 1.3: The settling mechanism for the conflicts between identity governance and contractual governance
When both parties take a way to evade the conflicts, community organizations and governments, in
fact, are suppressing or hiding the present conflicts temporarily, they have not really solved the
problems, and therefore, it is generally believed to be an ineffective or inefficient means of settling
conflicts.
When they take a complete way of division of labor, community organizations and governments are
stressing their own assertiveness, in reality; there is a contractual relation between organizations. This
relation is in essence a competitive relation. Under the present social economic conditions, governments
are in a dominant position owing to their controlling over the resources, so community organizations
have not been able to establish a complete competitive relation with governments. This model, therefore,
is a future ideal model as far as our present community organizations are concerned.
When community organizations and governments all emphasize the identity governance, the strategies taken by
community organizations will suit the demands of the governments as far as possible, and they will expect to gain
more resources from the governments and the society by means of this identity governance. This is the most
common manner in dealing with the relations between community organizations and governments in our country at
present.
When community organizations and governments make concessions in the dilemma conflicts, or seek
a neutral position, the resolving strategies formulated are a compromise. This is a semi-thorough settling
plan.
When community organizations and governments pay close attention to both identity governance and
contractual governance built in the division of labor, the cooperative settling strategies are formulated.
These settling plans are inclined to produce the results to the best satisfaction of both parties. Thus, this
is the target model sought by bureaucratic organizations.
To sum up, in the new entrusting agency relations, the community organizations as agents continue to
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—
undertake the social management functions as entrusters
the community governments. What differs
from the original administrative subordinate relations is that community organizations and governments
have become the cooperative partnership. Governments and community organizations manage and
administer the community and render public community services together. The resources needed to
operate community organizations may be provided directly by the governments, also may be obtained
through the special identity granted to community organizations by the governments, and may still be
obtained by means of accomplishing the entrustments and offering top quality services to community
residents. The common cooperative model between community organizations and governments
comprises two types: one is the model of “cooperative seller”. In this model, communities organizations
appear only as the agent of the government projects have less handling power or bargaining power. The
other one is the model of “cooperative partnerships”. Community organizations have much autonomy
right and policy making right, and have much more right to speak in the respect of project management.
No matter appears in which manner, the issue of transforming the functions of community governments
will be involved. Community governments can no longer control community organizations in the
original administrative order manner, instead through the manner of exchanging with community
organizations to accomplish their cooperative relations. Whom the exchange is beneficial to depends
upon the forces of both parties in the course of exchanging. Hence the different specific cooperation
model, such as the cooperation model in which community governments will dominate; the cooperative
model in which the division of labor between community governments and community organizations are
clear and the cooperative model in which community organizations will dominate.
4. Basic Conclusions
The city community organizations in our country are always subordinate to the community
governments and as the extension to the social management of community governments at the basic
level undertake the administrative functions of community governments. This management model has
obvious advantages in the highly centralized political society management. However under the market
economy conditions, as the community organization’s obtaining of resources becomes pluralized and the
demand of community residents becomes diversified it has not been the only best choice for the
community governments to manage the society by means of controlling the resources with their identity.
The community organizations’ increasing demand for autonomy has aggravated the internal
contradictions between community governments and community organizations and increased the
management cost, which brings a new demand of the community governments to manage the society
and makes the management model of community governments face tremendous challenges. Under the
background that governments transform their functions, it is a workable route to reduce management
cost through the organizational division of labor. Community organizations and community
governments establish a new agency cooperative relationship through the organizational division of
labor. Community organizations and community governments realize different cooperation model
according to their respective conditions of resources and the actual situations of social needs. Different
cooperation model can build multiple management models in community organizations at the basic level.
This is an important link in improving the grassroots management system in our country.
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