DO BOSSES MATTER?The role of city managers and external variables in explaining efficiency differences of Finnish municipalities*

Heikki A. Loikkanen**, Ilkka Susiluoto*** and

Michael Funk****

KTTO ry, Tiedettä ja viiniä, Uusi ylioppilastalo, Mannerheim –Sali,

18.3.2009

** University of Helsinki, Finland*** City of Helsinki Urban Facts, Finland**** University of Fribourg, Switzerland

2

Two-stage study

First stage: application of Data Envelopment Analysis (DEA) gives cost efficiency scores for municipalities

Second stage: explain efficiency scores (regr.)

A. With characteristics of municipalities - These steps were done in our earlier study Loikkanen &

Susiluoto (2005), published in Urban Publ Econs Review

B. This study: Consider in addition the role of city managers, their work environment and attitudes

- here we use survey Finnish results from U.N.Di.T.E Leadership Study 1996 (15 countries were involved)

3

Two-stage presentation

First stage: Presentation of earlier results of both stages, where city managers were not included

- data 353 municipalities , 1994-2002

Second stage (some new results):

A. Discussion on do bosses matter?- CEOs and Public sector leaders - What are Finnish City Managers?

B. Presentation of results, when city managers are included in regression models

- data 192 municipalities, 1994-1996- efficiency scores for these 192 municipalities

come from our earlier study

4

First stage: application of Data Envelopment Analysis (DEA)

Municipalities are multi-service providers (producers or buyers)

With DEA you get: Municipal cost efficiency scores (max value 100) - How large are differences in scores between municipalities?

- Which municipalities are best/weakest?

-Size, location etc?

5

Data

353 Finnish municipalities included

Years 1994-2002

Excluded from data: municipalities with less than 2000 people Åland islands (small communities) municipal annexations in the study

period

6

OUTPUTS AND INPUT IN DEA APPLICATION

Altogether 10 outputs (services): most important basic health, social and educational services

Special health care, infrastructure and transportation excluded

One input: Sum of net costs of included activities (money)

Four different DEA models estimated. Their averages = final results for the municipalities

7

OUTPUT MEASURES IN DEA MODELS

.

1. Days in child care centers2. Days in family child care3. Open basic healthcare, visits4. Dental care, visits5. Bed wards, basic health care 6. Institutional care of elderly 7. Care of the handicapped, days8. Hours of teaching in comprehensive schools9. Hours of teaching in senior secondary schools10. Loans from municipal libraries

8

DEA results: Municipalities in order of efficiency 1994-2002

40

50

60

70

80

90

100

effi

cien

cy,

%

9

Efficiency of basic service provision during 1994-2002 (left) and 2000-2002 (right)

10

Municipalities with highest efficiencies

• DEA Popul- Province UEUrb. % ation raterate

• 1 Rusko 99,5 3 300 Vars.-Suomi 10,2 73• 2 Raisio 99,2 22 800 Vars.-Suomi 13,3 98• 3 Toijala 98,8 8 100 Pirkanmaa 17,8 96• 4 Kihniö 98,3 2 500 Pirkanmaa 19,1 34• 5 Lemi 96,6 3 100 Et.-Karjala 15,1 44

• 6 Karjaa 96,5 8 800 Uusimaa 13,3 81• 7 Masku 96,4 5 300 Vars.-Suomi 9,0 80• 8 Nakkila 96,4 6 100 Satakunta 16,2 75• 9 Karkkila 96,1 8 700 Uusimaa 14,0 86• 10 Rautjärvi 96,0 4 800 Et.-Karjala 17,0 58• Median 87,2 6 000 15,7 60

11

Municipalities with lowest efficiencies DEA Popul- Province UE

Urb. % ationrate rate

• 344 Vuolijoki 73,7 2 900 Kainuu 22,1 51• 345 Suomussalmi 73,2 11 400 Kainuu 28,4 56• 346 Puolanka 69,5 4 000 Kainuu 23,6 52• 347 Sodankylä 68,6 10 200 Lapland 26,9 59• 348 Kuusamo 67,7 18 200 P.-Pohjanm. 22,9 63• 349 Kolari 67,5 4 200 Lapland 26,8 45• 350 Inari 66,1 7 600 Lapland 25,2 63• 351 Enontekiö 65,6 2 300 Lapland 29,6 42• 352 Muonio 65,4 2 600 Lapland 21,4 55• 353 Kittilä 62,4 6 000 Lapland 24,5 49

• Median 87,2 6 000 15,7 60

12

DEA efficiency, 10 largest cities

• DEA Ra- Popul- Income/ Coll. Un- • score ting ation person, degree empl. • % /353 € eduction rate• % %

• Helsinki 79,4 317 543 000 20 300 32,3 13,2• Espoo 82,5 268 205 000 24 100 39,5 9,5• Tampere 91,4 65 190 000 16 900 27,5 18,4• Vantaa 83,8 242 173 000 19 900 26,1 11,5• Turku 84,4 233 170 000 16 500 25,7 17,7• Oulu 90,6 80 116 000 17 400 30,3 17,9• Lahti 91,2 68 96 000 15 600 21,3 20,8• Kuopio 91,1 70 86 000 16 000 27,5 17,9• Jyväskylä 80,6 303 77 000 16 200 29,5 20,4• Pori 89,8 100 76 000 15 400 20,6 21,9

• Median 87,2 177 6 000 13 600 15,5 15,7

13

Second stage (regression) results; without city managers

Variable explained: efficiency scores (range 63-100)

Summary of factors which were

theoretically worth and possible to test with data available and

statistically significant in explaining efficiency differences

14

Results: Factors improving cost efficiency of municipal services

High education level (maximum effect on efficiency almost 10 %)

Dense urban structure ( max. effect 4 %)

Employees 35-49 years of age (2 %)

Using private sector as producer? (about 2 %)

15

Results: factors weakening cost efficiency

High income (labour cost) level (-10 %)

Big population (-12 % for Helsinki)

Peripheral location (-20 % for Lapland)

Wide variety of provided services (-5 %)

High unemployment (-5 %)

Purchases from joint munic. organisations, (-3%)

Large state (matching) grants in beginning of study, (-10%)

during lump sum grant era no effect

16

Factors which were statistically insignificant

Size of central (core) municipality relative to surrounding ones in the functional area Change in population size (5-year relative change)

Tax revenue per inhabitant

Political variables - party composition or its dispersion in municipal councils - turnover in municipal elections

17

Satisfaction with services (scores 1-5) in 2005 and DEA-efficinecy score (2000-2002) in 30

municipalities

75

80

85

90

95

100

3,4 3,5 3,6 3,7 3,8 3,9

satisfaction score

eff

icie

ncy s

co

re

R=+0,370

18

Do CEOs or City Managers matter?

Previous studies on

CEOs

Public sector leaders

City managers (loc. gov. CEOs)

19

Do CEOs in private firms matter?

Some examples of previous studies

Family and related shocks (Bennedsen et al.)

Gender and age (Kotiranta et al.)

Leadership type (Waldman et al. )

20

Does City Manager matter ?

City Manager vs. Elected City Mayors (many studies)- Hayes and Chang (1990), Deno and Mehay (1987), O’Brien (1995)

- In Kreft (2007) and Eliakonopov (2007) City Managers more efficient

Gender: impact on leadership and performance - No differences: Donnell and Hall (1980), Duerst-Lahti and Johnson

(1992), Karsten (1994) and Duerst-Lahti and Kelly (1995)

- Women better performance: Johansen (2007) on schools sup.intendents

Theory of career concerned public sector managersTirole (1994), Dixit (1994, 2002), Dewatripont (1999), Besley (2004) Implisiittiset sopimukset ja kannustimet (career concerns) tärkeitä

21

What is the Finnish City Manager?

Governance structure of municipalities electorate (voters) council government (executive board)

- all parties in council are proportionately represented in government

city (municipal) managerNote:

chairs of council and government are lay politicians (not the same person)

city managers are civil servants elected by councils, not political mayors elected by voters

22

Does Finnish City Manager Matter? City managers have quit a lot power

If they are W. Niskanen type bureaucrats, then we expect them to create slack (inefficiency) and all positive factors are used to enhance slack

If they are career concerned bureaucrats, then we expect them to serve the public by providing

services efficiently especially early in career and all positive factors like education, networks etc

are used to enhance efficiency Problem: we don’t know which type they are

If all or most of them are of the same type, we should get some results

23

U.Di.T.E Leadership study data

52 questions to all mainland city managers in mainland Finland,

Response rate 74 %

Information on following types of variables education, gender, party, tenure,… working environment, network, conflicts … attitudes towards reforms etc

Next, some of these were tested preliminarily.

24

Explaining DEA efficiency of Finnish municipalities with city

manager characteristics, OLS 1994-1996 (page 1).

Model A Model B

1994 1995 1996 1994 1995 1996

Constant 75.9 79.4 82.8 79.5 75.5 78.0

(9.4***) (10.2***)(10.7***) (14.5***) (13.8***) (12.6***)

Structural factors:

population, 1000 -0.030 -0.033 -0.027

(-3.92***) (-7.14***) (-4.38***)

unemployment rate, % -0.278 -0.294 -0.314

(-1.84*) (-2.11**) (-2.59**)

education level of 0.070 0.046 0.049

population, index (4.28***) (3.15***) (3.35***)

City manager’s assessment of -0.425 -0.476 -0.539

structural factors (-2.07**) (-2.23**) (-2.99***)

25

Explaining DEA efficiency of Finnish municipalities (page 2)

Model A Model B

1994 1995 1996 1994 1995 1996

Location, physical structure:

economic distance*2 -0.024 -0.020 -0.017 -0.028 -0.027 -0.025

(-3.21***) (-3.22***) (-3.33***) (-4.52***) (-4.91***)(-6.36***)

urbanization rate, % 0.0013 0.0011 0.0013

(4.50***) (4.43***) (5.17***)

Local political structure:

left parties in -0.133 -0.162 -0.114 -0.155 -0.181 -0.149

municipal council, % (-3.01***) (4.14***) (-2.89***) (-3.69***) (-4.96***) (-4.00***)

concentration of -0.046 -0.137 -0.129

party structure in (-0.60) (-2.03**) (-1.85*)

municipal council, index

26

Explaining DEA efficiency of Finnish municipalities ( page 3)

Model A Model B

1994 1995 1996 1994 1995 1996

Characteristics of CM:

gender (m=0,f=1) -3.43 0.489 -0.65 -3.67 1.09 0.095

(-1.55) (0.17) (-0.28) (-1.56) (0.37) (0.04)

education level, years 0.166 0.407 0.297 0.143 0.375 0.272

(1.16) (3.07***) (2.16**) (0.97) (2.91***) (1.99**)

Attitudes of CM towards:

worker participation in 1.28 1.34 1.28 1.60 1.74 1.63

organizational change (1.41) (1.83*) (1.67*) (1.95*) (2.49**) (2.28**)

relative efficiency -0.293 -0.649 -0.780 -0.439 -0.675 -0.795

of public sector (-0.75) (-1.81*) (-2.23**) (-1.14) (-1.95*) (-2.27**)

co-operation 0.119 0.179 0.149 0.086 0.160 0.133

with other actors (1.97*) (3.18***) (2.66***) (1.46) (2.77***) (2.25**)

27

Explaining DEA efficiency of Finnish municipalities (4)

Model A Model B

1994 1995 1996 1994 1995 1996

CM’s assessment of negative

factors’ effect on his work

Various factors, -0.268 -0.110 -0.210

index (a) * (-2.93***) (-1.28) (-2.48**)

Group contradictions, -0.895 -0.072 -0.228

index (b) ** (-3.01***) (-0.26) (-0.90)

R2 (adj) 0.274 0.306 0.320 0.256 0.284 0.309

Ramsey 0.102 0.469 0.154 0.543 0.147 0.190

Jarque-Bera 0.078 0.133 0.028 0.082 0.277 0.039

Max VIF 1.79 1.94 2.11 1.51 1.51 1.51

N 192 192 192 192 192 192

* (a) Includes organizational, political and bureaucratic problems, contradictions between actor groups, problems in

organising work and lack of clearly defined political goals.

** (b) Contradictions between political parties, contradictions between sector managers and city offices.

28

On the basis of CM variables

CM’s ’s education level had a positive impact on efficiency

NO effect was found for Gender, age, political party membership

CM’s positive attitude towards workers’

participation in decision making (especially under organizational change) had a postive relation to efficiency.

29

CM’s positive attitude and experience concerning

cooperation with other stakeholders was positively related

to efficiency Partners: local politicians, other city management and

employees, state and regional administration

representatives, business firms, trade unions and media.

Municipalities where the CM regarded the private sector

generally more efficient than the public sector were more

efficient.

30

Efficiency was lower in municipalities where the CM saw a lot of

Contradictions between parties and municipalities and their government

Byrocracy and work organization problems

31

Factors having no effect on DEA efficiency

age of city manager

number of years as CM

length of work week

membership in local organizations, trade unions or political parties

living in the municipality now or as a child

recent privatization or centralization of service activities

years of the chair of municipal board in his task or his membership in municipal council

planning to look for work elsewhere

experiencing personal contradictions with other actors

large number of other actors influencing the budget

32

THESE WERE OUR VERY FIRST RESULTS, reported also in Kunnallistieteellinen aikakauskirja 4/2008 in Finnish, and there is also a conference paper in English, available upon request

More later

Thank you

Where is my wine??