Credible Commitment and Council-Manager Government: Implications for Policy Instrument Choices

Author(s): Richard C. Feiock, Moon-Gi Jeong and Jaehoon Kim

Source: Public Administration Review , Sep. – Oct., 2003, Vol. 63, No. 5 (Sep. – Oct., 2003), pp. 616-625

Published by: Wiley on behalf of the American Society for Public Administration

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Richard C. Feiock

Moon-Gi Jeong Florida State University

Jaehoon Kim Seoul National University of Technology

Credible Commitment and Council-Manager

Government: Implications for Policy

Instrument Choices

The credible constraint of morally hazardous or opportunistic behavior can enhance efficiency. This idea is applied to an examination of local government institutions to identify how council- manager government constrains opportunism in economic development by substituting low-power bureaucratic incentives for high-power electoral incentives. A panel design isolates changes in the

use of development strategies or instruments in 516 cities.

The central argument presented here is that the Progressive ideology of the separation of politics and administration, institutionalized in the council-manager plan, allows administrators and elected

officers to more easily resist opportunistic behavior. Economic and political forces have significant effects that are different for mayor-council communities than for council-manager communities. The influence of strategic planning is evident in council-manager cities, but not in mayor-council communities. Under council-manager government, development is carried out in a discriminating

manner, leading to lower levels of financial incentives but more loan and business-attraction pro- grams. In conclusion, the authors discuss how the career patterns of city managers are shaped by the incentive structures created by the council-manager plan.

Questions about whether and how different forms of

municipal government influence policy choices have oc-

cupied scholars of urban politics and administration for

several decades (Lineberry and Fowler 1967; Ostrom, Bish,

and Ostrom 1988; Ruhil et al. 1999). Much of the theoreti-

cal underpinning of this inquiry derives from the study of

structural reforms introduced by the municipal reform

movement. This article revisits the history of municipal

reform and examines how different forms of governments

influence the incentives of local actors and the problems

of moral hazard and credible commitment.

As in other organizations, governance structures in cit-

ies create incentives for specific behaviors. Some high-

power incentives produce benefits that can be realized

directly by decision makers. In markets, high-power in- centives lead to innovation and enhanced productivity as

entrepreneurial leaders respond to profit motives

(Williamson 1988). Nevertheless, high-power incentives

Richard C Feiock is a professor and director of the doctoral program at the Askew School of Public Administration and Policy, and he directs the local governance program at the DeVoe L. Moore Center at Florida State Univer- sity. He is coauthor of Institutional Constraints and Policy Choice (SUNY Press) and has published widely on issues of local government and governance. Email: [email protected]

Moon-Gi Jeong is a PhD student at the Askew School of Public Administra- tion and Policy and a DeVoe L. Moore graduate fellow. His interests are state and local economic development, regulation, and public finance. Email: [email protected]

Jaehoon Kim is an associate professor of public administration at Seoul

National University of TechnolTy and a visiting scholar at the Askew School of Public Administration and Poicy. His interests are economic development policy, intergovernmental relations, and public budgeting and financial man- a ement. He has published articles in various journals, including the Journal oXPublic Administration Research and Theory and Korean Puglic Adminis- tration Review. Email: jikI [email protected]

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in government may lead to political opportunism and rent

seeking as actors seek private gain through public ad- ministration (Frant 1996; Feiock and Kim 2001). Many

Progressive Era municipal reforms were intended to elimi-

nate the corruption of machine party politics, often by

reducing politicians' ability to deliver particularistic ben-

efits. Reform proposals limited elected officials' ability

to reward supporters and to punish opponents (Frant 1993;

Knott and Miller 1987). From a transaction-cost perspec-

tive, these measures were institutional changes that re-

placed high-power incentives with low-power incentives

(Frant 1996).

Progressive Era reforms sought to improve administra-

tive efficiency and to break the influence of partisan poli-

tics on local decisions (Ostrom, Bish, and Ostrom 1988).

The key municipal reform proposal was the council-man-

ager form of government, in which an elected council and

its employee-the manager-have distinct responsibilities that separate the articulation of policy from its execution.

Recent findings drawn from several policy areas suggest

the institutional rules of the game in reform governments

create low-power incentives that emphasize citywide is- sues and constituencies and enhance the role of profes-

sional expertise in informing public decisions (Clinger-

mayer and Feiock 2001; Feiock and Kim 2001; McCabe

and Feiock 2001).

The Transaction Cost of Local Governance The form of government embodied in the city charter

operates as a constitutional contract that determines the

transaction costs experienced by various actors and inter-

ests in their efforts to influence public choices (Maser 1985,

1998; Miller 1985). Centralized organizations of all types

are distinguished by the broad powers of their leaders to

intervene in lower-level decisions (Milgrom and Roberts

1990). Political intervention in policy and administrative affairs has been a primary concern of reformers because it

can undercut the security of property rights and contract

enforcement (Clingermayer and Feiock 1997). From the

standpoint of business, developers, service suppliers, or other external actors, the uncertainty resulting from politi-

cal opportunism makes entering into relationships with local government risky. Elected officials who are wary of displeasing contending coalitions or alliances of constitu- ents may not be able to make credible commitments to important stakeholders. This is a problem of commitment because government leaders themselves wish to be pub- licly constrained from interventions that may promote their short-term electoral interests, but which harm the commu- nity and their electability in the long term. Constraining themselves ahead of time is a positive action that can en- hance efficiency. Paradoxically, the long-run political and

economic benefits to elected leaders are secured only by

denying themselves short-term political gains.

Control of the apparatus of local government can be used

to extract political rents that undermine the efficiency of

government's actions (Olson 1964; Feiock 2002). Princi-

pal-agent approaches argue that efficiency is enhanced when the agent's goals are the same as the principal's. Fol-

lowing Schelling (1960), Miller (2000) argues just the op-

posite: The usefulness of the agent depends on the agent

having preferences and pursuing goals that are quite dif-

ferent from the principal. Managers can best pursue the

interests of citizens and the council by working toward

professional goals rather than the political interests of the

voters and the council.

There is a value to citizens in a democracy in hiring

public managers who have preferences that are dis- tinct from those of citizens themselves. There is a

benefit to be derived from training a body of profes-

sional bureaucrats who are granted a certain degree

of discretion in the exercise of public trust. In the

United States, that discretion has been enhanced by

the Progressive reform prescription which has pro-

vided bureaucrats with a useful myth and protective

ideology. The useful myth is that of the politics/ad- ministration dichotomy, and the protective ideology

is the ideology of neutral professional competence.

Together, these often provide a credible constraint on the efficiency-undermining rent-extraction activi-

ties of those in political power. (Miller 2000, 314)

The city management profession's commitment to pro-

fessional standards and its attachment to the mythology of

neutral competence enhance efficiency because they pro-

vide bureaucrats with political weapons that can help them

fulfill the public trust (Miller 2000, 325). The politics-ad- ministration dichotomy may be no more than a myth, but it

provides a structure for governance that is biased against partisan political interference and in favor of professional values and expertise. This is exactly the message of Lineberry

and Fowler (1967), who argued that reform institutions in- sulate municipal government from private demands.

The council-manager form of government is presumed

to allow for greater consideration of long-term interests, and

therefore encourages long-term development projects, such

as revenue bond-funded infrastructure projects. City man-

agers' actions may also be constrained by professional norms

embodied by organizations such as the International City/ County Management Association (Nalbandian 1989). Con- versely, the incentive structure of mayor-council government

may lead officials to use development policy as a stage to promote personal and political goals. In cities experiencing economic decline, political leaders may maximize electoral support by promoting costly, high-risk development instru- ments such as financial incentives which can provide short-

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term political benefits. In general, mayor-council govern-

ment has been regarded as responsive to popular demands

and less likely to insulate local decisions from demands and

pressures in the community (Lineberry and Fowler 1967;

Lyons 1978). Mayor-council government can provide in-

centives for the emergence of narrow issues and constituen-

cies, place constraints on the role of professional expertise

in informing public decisions, and lead local officials to be

more attuned to political credit-claiming opportunities

(Clingermayer and Feiock 2001; Sharp forthcoming).

The Roots of Municipal Reform The municipal reform movement of the late nineteenth

and early twentieth centuries left an indelible mark on lo-

cal government structure. The origin of municipal reform

dates back to the early days of the Progressive movement

(Hofstadter 1956). One target of the Progressives was elec-

toral influence on bureaucracies, which was linked to in-

efficiency and corruption. The movement to reform gov-

ernment introduced a number of changes designed to

professionalize local government. The crown jewel of mu-

nicipal-level Progressive reform was the institution of the

council-manager form of government.

Progressive reform efforts were rationalized as a re-

sponse to the widespread corruption created by the patron-

age of urban political machines. The system of patronage

politics can be traced to the Andrew Jackson administra-

tion and reached its peak toward the end of the nineteenth

century. Groups that had been systematically excluded from

the political arena coalesced and mounted full-fledged at-

tacks against patronage politics (Shefter 1994). The Na-

tional Civil Service Reform, formed in the late 1800s,

played a major role in influencing the development and

passage of the Pendleton Act in 1883. These efforts laid

the foundation for the next generation of reformers-the

Progressives, who directed their attention to the local level.

Efficiency was the theme of the Progressives; they

sought to make local governments more efficient and pro-

fessional. Revisionist historians, particularly Richard

Hofstadter and Samuel P. Hays, argued the Progressive

movement was led by elite, upper-class men of old wealth

who had lost power after the Industrial Revolution, when

newly rich corporate leaders allied themselves with the

urban political-machine bosses. Progressivism, in short, was "led by men who suffered from the events of their

time not through shrinkage in their means but through the changed pattern in the distribution of deference and power" (Hofstadter 1956, 135).

At the local level, the principal change in government institutions promoted by reformers was the replacement

of the mayor-council form of executive government with

the council-manager plan. A common set of municipal re-

forms was proposed in an effort to create a "nonpolitical,

essentially technical organization and management"

(Knott and Miller 1987, 3). Municipal reformers believed

the best candidates for administrative positions would be

those with professional training and technical experience.

Council-manager plans essentially abolished the political position of the mayor. Instead, professional administra-

tors were hired by municipalities to conduct the daily ex-

ecutive decisions to operate the city. If the position of the

mayor was not completely eliminated, the mayor was re-

duced to little more than a ceremonial figurehead by mak-

ing the mayor a part-time position and reducing the vot-

ing power of the mayor. Other municipalities also changed their method of electing mayors, so that the city council

members were entrusted to select the mayor rather than

relying on direct election.

In 1912, Sumter, South Carolina, became the first city

to adopt the council-manager plan. Over the next two de-

cades, Progressive reformers succeeded in changing the

forms of government in hundreds of cities across the coun-

try (Karning and Welch 1980; Ruhil et al. 1999). While the municipal reform movement originated in the North-

east, the movement had its most significant impact in the

Southwest. The Progressives had some success in the

Northeast, but it was in the racially and economically ho-

mogeneous West and Southwest that their goals of profes-

sional public management were most fully realized. Ur-

ban scholars' focus on the reform attempts in the urban

settings of the Northeast, to the neglect of other regions, may have led them to underestimate the true impact of the

Progressive movement (Bridges 1997).

Opportunism and Local Economic Development

Economic development presents a policy arena in which

high transaction costs can create a barrier to efficiency,

and high-power political incentives are likely to be present.

Evaluations of economic development programs report

some success in attracting new firms and investment, but

these efforts often do not substantially improve employ- ment opportunities in a community (Feiock 1991). This

has been especially true for financial incentives, which often

are criticized as zero-sum (or negative) transfers or as cor-

porate welfare. This raises a question: Why do so many

cities aggressively pursue development programs despite their failure to generate jobs? Empirical research suggests the answer lies in political opportunism. In cities that face a loss of population or jobs, development policy provides opportunities for elected officials to use certain policy in- struments that allow them to visibly reward loyal constitu-

ents or to solidify political support (Wolman 1988;

Clingermnayer and Feiock 2001).

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While the form of government is often included as a

variable in explanatory models of development policy

(Fleischmann, Green, and Kwong 1992; Neiman and

Fernandez 1996; Neiman and Lewis 2001), the extant work

does not adequately capture whether council-manager gov-

ernments insulate citizens from high-power incentives, for

two reasons. First, most research treats institutional effects

as additive rather than interactive. This specification masks

the mediating role of institutions in shaping responses to

political and economic forces. Second, the literature often

does not differentiate among the policy development in-

struments that are employed. This is critical because some

instruments (such as financial incentives) provide much

greater potential for opportunistic behavior. Each of these

issues will be discussed in turn.

The Mediating Role of Governance Institutions

Rather than directly determining policy and adminis-

trative choices, the form of government influences devel-

opment decisions through its influences on incentives-

and thus the propensity to respond to political and economic

changes in a morally hazardous manner. Reformed gov-

ernment structures are expected to attenuate the relation-

ship between certain economic conditions, administrative

organizations, and economic development activity-an in-

teractive rather than an additive effect. The council-man-

ager form of government has long been viewed as a means

of insulating local decisions from external political pres-

sures (Lineberry and Fowler 1967; Lyons 1978). By insu-

lating development processes, council-manager govern- ments provide local officials an opportunity to respond to

underlying economic problems and to match development

policies to specific needs, rather than simply responding

to political pressures for development. While most scholars have examined the additive effects

of reform institutions, the literature provides limited em-

pirical support for interactive institutional effects on in-

strument choice. Sharp (1991) examines how the form of

government conditions the link between fiscal stress and

the number of financial-incentive programs offered by de-

velopment agencies. She found that "the pressure to re-

spond to fiscal stress with financial incentives and the adop-

tion of many development strategies appears to be

negligible in reformed settings [council-manager], but sub- stantial in unreformed settings [mayor-council]" (1991, 142). However, her conclusions are based on a compari-

son of bivariate correlation coefficients between distress and policies selected under different forms of government which is inadequate for evaluating conditional relationships

(Wright 1976; Aiken and West 1991). Sharp's recent work

on local morality policies examines multivariate relation-

ships between issue characteristics and policy responses

separately for communities with city managers and may-

ors (Sharp forthcoming). She finds that the more politi-

cized character of mayor-council government translates into

outcomes that are responsive to interest-group activism