The Hollow State: Dilemmas for Management and Performance Measurement

The Hollow State: Dilemmas for Management and Performance Measurement

By Barry Nazar

The term, “Hollow State,” was introduced by Milward et al. (1993) as a metaphor to describe the devolution of power and decentralization of services to both sub-national governments and third party nongovernmental agencies to manage in the name of the state. The term is adapted from the private sector notion of the “hollow corporation,” wherein outsourcing ratios are huge. The Hollow State refers to the separation between a government and the services it funds, which can often be many layers. In mental health, for example, funding goes from federal to state to county and then to nongovernmental service providers. Actual services don’t occur until the third and fourth layer. The central task shifts from the traditional managing of hierarchies to arranging and monitoring networks. Command and control mechanisms are replaced by more complicated relationships.

At the time Milward and colleagues identified the phenomenon (early 1990’s), it was in its infancy. But the speed of its adoption has been substantial and deliberate. At the end of the decade, they reviewed a considerable body of work, especially for human services, to learn what fundamental changes in governance result from this shift in public administration practice (Milward & Provan, 2000).

·  There is a shift in capacity from public to private venues. The public responsibility, however, inescapably remains with the state despite its decreasing internal capacity and the overall growing complexity of external deployment.

·  There is increased flexibility by outsourcing work to a diverse constellation of private agencies but the management tools devolve from direct bureaucratic control to “principal-agent” relationships; i.e., contracts, bidding, service monitoring, and whatever inducements the principal can bring to bear upon the agent.

·  Many principal-agent strategies tend to create short-term perspectives on the part of the agent. Funding and delegated authority are conditional and time-limited under grants and contracts. All of this tends to create a diluted legitimacy and stability of public authority.

·  The Hollow State results in decentralized and sub-specialized network components (agencies) that need to coordinate and cooperate to realize full effectiveness to broader missions, but the principal-agent arrangements do little to support such cooperation. Indeed, many aspects of these arrangements thwart cooperation. The agencies are often set up as competitors in bidding. Contract monitoring and rewards are narrowly focused for each contractor. And uncertainties about future funding create instability and short term outlooks among agencies in a network, which discourages long term commitments for cooperation.

More recently, Terry (2005) discusses an aspect of the Hollow State which he calls, the “Thinning” of administrative institutions. By this, he does not mean merely the downsizing of administrative institutions. Indeed, the public employment rolls are up, not down. Drawing upon the work of other scholars, he makes the case that institutional integrity rests upon three things: regulatory, normative, and cognitive elements. These correspond to rules, values, and meaning, and they are carried by culture, structures, and routines. The advent of the Hollow State is accompanied by, or propelled by, the New Public Management (NPM), which is a market-driven approach to management. Terry makes the case that NPM erodes the elements that sustain institutional integrity.

The New Public Management movement aims to eliminate red tape, utilize the expertise of private sector management and its technology, and adopt a market oriented approach to attain outcome objectives. So, rules become flexible, values shift toward short term concerns (contract cycles), and meanings adjust to principal-agent relationships. The NPM was intended to address the perceived incompetence of government, but in the long run makes it a self-fulfilling stereotype as government institutions become “thin.”

Most recently (Lambright, 2010), the issues were examined from the standpoint of understanding contracted provider motivation. Because government retains the ultimate responsibility for getting things done, it needs to know what its contracted providers (agents) are doing and how to influence them to do certain things. The terrain now ranges broadly from collecting garbage to producing nuclear weapons. Inevitably, the government must use some kind of service monitoring tools and combine these with contract rewards and penalties.

One of the more prominent frameworks for understanding motivation in an organizational context is Expectancy Theory. While it usually is applied within a bureaucratic structure, Lambright examined it in the context of intersectoral service delivery networks; i.e., early childhood programs. Expectancy theory holds that three components shape motivation; (1) the expectation that a task can be accomplished, (2) the belief that the task is related to rewards and penalties, and (3) the perceived importance of those rewards and penalties. Theoreticians call these expectancy, instrumentality, and valence. Lambright examined the support for expectancy theory in connection with the fidelity of fulfilling the service monitoring instruments of the funding source.

The findings were mixed. In cases where respondents had clear views about the three elements of expectancy theory, it reliably predicted the level of motivation to complete service monitoring with fidelity. The difficulty arises from a high prevalence of uncertainty about one or more elements in the expectancy model. That is, a great many service providers and their employees have uncertainty about: (1) whether they can complete the task, (2) whether the task is related to rewards and penalties, or (3) whether the rewards and penalties are of any importance. This seems to reflect a failure on the part of the Hollow State to effectively use the management tools it has at its disposal. Worse still, the empirical evidence indicates that the prevalence of uncertainty is highest among those programs where government monitoring is also highest. A conclusion is that attention to monitoring is insufficient to bring about desired outcomes. Clarity of communication and expectations is far more important.

Frederickson and Frederickson (2007) devote an entire book to the topic, Measuring the Performance of the Hollow State. In this they examine the feasibility and concerns of managing the so called, “third party government.” While the book extensively reviews the Government Performance and Review Act (GPRA) and the Program Assessment Rating Tool (PART), its concluding chapter returns to the theme set forth above; i.e., it’s all about setting expectations. To demonstrate how universally timeless the matter is, they quote from the early writings of Mary Parker Follet (1926, p 157), “… the strength of a favorable response to an order is in reverse ratio to the distances the order travels.” In a third party government, the distances are indispensably greater. If government goals are the orders and agency outcomes are the response, then something more is required to span the new distances of governance of the third party government.

What are the implications for the nonprofit sector? On the one hand, the trend toward the Hollow State has been a boon for nonprofits (and for-profits). They are the preeminent deliverer of public sector goods and services. The amount of money available to do the government’s work vastly exceeds the largesse from charitable donors. On the other hand, the participating nonprofits are wedded to a system that has fragmented goals, unclear expectations, short term horizons (annual appropriations), and ever increasing demands for poorly articulated monitoring. Unless care is taken, these foibles can easily infiltrate the culture of a nonprofit agency.

In an earlier NEST article, we looked at the capacity for implementing evaluation among nonprofits (Carman & Frederick, 2010), Those agencies that used evaluation to address their own internal management needs fared far better (at everything) than those who deployed evaluation to satisfy external parties; especially funding sources. Just as the Hollow State seems to be eroding the integrity of administrative institutions (Terry, 2005), it may also erode the integrity of its nonprofit agents as well. There’s an ever increasing need for enlightened leadership among nonprofits that can place proper attention on the organizational needs for its own integrity/purpose and resist the temptation of merely operating as a temp service for the state. Program evaluation is an essential component to competent management and the focus for evaluation should not rest solely on meeting monitoring requirements of funders. Nor should the funding sources be the sole consumers of evaluation.

While this article has described many difficulties and dim prospects about the Hollow State, there is a silver lining in the clouds. The looseness of the current system presents opportunities for nonprofits to act proactively in designing their destiny. We’ve found at the NEST, that careful and deliberate proposal design can put the nonprofit in charge of its mission and the monitoring, even while working on behalf of the state. Proposals with thoughtfully designed evaluation plans not only increase the likelihood of getting funded, they provide the much needed articulation that distinguishes the goals of the nonprofit and their alignment with the goals of the state (funding source). Such proposals also provide adequate budgeting for carrying out evaluation efforts and thereby strengthen the management functions of the nonprofit agency.

Frederickson, D.G. & Frederickson, D.G. (2007). Measuring the performance of the hollow state. Washington, DC: George Washington University Press.

Lambright, K.T. (2010). An update of a classic: Applying expectancy theory to understand contracted provider motivation. Administration and society, 42(4), 375-403.

Milward, H.B. & Provan, K.G. (2000). Governing the hollow state. Journal of public administration research and theory, 10(2), 359-379.

Milward, H.B., Provan, K.G., & Else, B.A. (1993). “What does the hollow state look like?” In: Barry Brozeman (Ed.) Publc Management: The state of the art, 309-322. San Francisco: Jossey Bass.

Terry, L.D. (2005). The thinning of administrative institutions in the hollow state. Administration and society, 37(4), 426-444.