Management Case

There are various differences in the traditional public administration model and New Public Management model to manage the public sector. In order to determine which of these two models is better, it is worth to discuss the theoretical bases for the NPM model and then compare the major differences between these two models. According to Hughes, there are two major principles of NPM: (1) it is market-based; (2) it aims to move away from bureaucracy as an organizing principle. The first principle consists of three theoretical bases namely public choice theory, principal-agent theory and transaction cost theory, while the second principle is private management.

In the market-based principle, public choice theory refers to the economic theory that applied to the bureaucracy that all human behavior is dominated by self-interest. There is an assumption that individuals are rational who always seek the biggest possible benefits and the least costs in their decisions, while discourage from certain activities if they get loss and attracted towards certain activities if they get rewards. Instead of being motivated by the public interest, bureaucrats are like anybody else who are assumed to be motivated by their own interest. As a result, bureaucratic failure exists as bureaucrats are regarded as to maximize their own utility at the cost of their agency; maximizing their own welfare and neglect the public interest. In general, the best outcome would be a maximum role for market forces and a minimal role for government. In economic view, if the role of government in goods and services supplying could be reduced and run by the natural market, the economy would benefit. (PUAD notes)