CitizenToday

December 2010

Shaping the futureService delivery in Australia and Brazil

Government and enterpriseThe state of state-owned enterprises

The party’s overA new era in Japan

Over the horizon

December 2010

Contents

03

04Best in class?State-owned enterprises (SOEs) remain key players in the global economy and tend to be well regarded by citizens in many countries

24The best of both worldsWe suggest how a combination of the respective strengths of the public and private sectors will result in better and more effective policy-making

26Reform in focusDainius Kreivys, Lithuania’s Minister of Economy, explains how his Government is working with business to attract foreign investment into his country

28Gambit or stalemate?After nearly 50 years if one-party rule, we examine the impact of Japan’s new Government — and its prospects for success

30The winning ticketCitizen Today speaks to a Swiss lottery leader about protecting a valued revenue source, effective regulation and the future of gaming

32Banking on the right exitWith the fi nancial system now stabilized, we consider how — and when — governments may reverse their investments into the banking sector

343638

Shipshape for the futureWe examine the role and future plans of Québec’s public ferry services

Hot off the pressA look at recent thought leadership from Ernst & Young and reviews of new books available around the world

Spotlight on RussiaIntroducing Ernst & Young’s Government & Public Sector service line in Russia

16Advancing Australian health careWe talk to David Panter about reforming health care to ensure that systems and hospitals can cope with rising demand

21Back to schoolCitizen Today investigates the work of the Canada School of Public Service

08Mapping government and enterprise around the worldWe chart the distribution of SOEs by country and citizens’ views on their performance

102020 visionWe look at how to reshape public services for 2020 — from social security to social productivity

The man with the planCitizen Today talks to Brazilian planning leader Sérgio Ruy Barbosa about infrastructure development and the future of Rio de Janeiro13

Welcome back to Citizen Today, Ernst & Young’s magazine for our government and public sector clients around the world. Amid widespread political turbulence, governments the world over are now being confronted by the harsh realities of defi cit reduction. Barack Obama’s setback in the US mid-term elections and the extensive strikes in France against planned pension changes are just two examples of how toxic the combination of high unemployment twinned with deep spending cuts and welfare reforms is proving for many incumbents. As we continue into this unchartered terrain, it is clear that this remains an environment fraught with challenges for governments. Grappling with this new age of austerity won’t come easy. What’s needed is for public servants to seize this opportunity to start afresh. Governments will need to empower public servants to innovate and experiment, as well as support them through their own uncertainty about their job security. In this, our sixth edition, we consider many of these themes.We report on Ernst & Young’s recent report on state-owned enterprises (SOEs), Government as best in class shareholder, which found that SOEs continue to perform a vital economic and social role in many countries. In practical case studies, interviews with a variety of experts and a survey of 12,000 citizens in 24 countries, we also conclude that SOEs tend to be well regarded by citizens in many countries for high levels of service and quality and can become much more effi cient if their governance is improved.We look at the future of public services and how public sector leaders in Brazil and Australia are facing up to the challenges of reduced resources and higher citizen expectations. The importance of lifelong learning and experiencing government systems in other countries for public servants is the basis of our feature on the Canada School of Public Service, and the role of governments in fi nancial services is also under our spotlight.We look at Japan’s experiences since the election of its fi rst center-left Government in more than 50 years, and examine the current challenges and issues of the lottery industry in Europe and around the world. In our regular “government and enterprise” feature, we highlight the fast-changing maritime industry, with the help of Georges Farrah, chief executive of the Québec Ferry Corporation. And in our “Hot off the press” pages, we highlight recent thought leadership from Ernst & Young, and review books on economic growth and Barack Obama’s experiences as Commander in Chief of the US armed forces. We are delighted to receive your feedback and suggestions for the magazine. We look forward to receiving your ideas, as well as offers to contribute your own insights.

WelcomeAbout Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 141,000 people are united by our shared values and an unwavering commitment to quality. We make a difference by helping our people, our clients and our wider communities achieve their potential.

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Assurance | Tax | Transactions | Advisory

Ernst & Young

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This publication contains information in summary form and is therefore intended for general guidance only. It is not intended to be a substitute for detailed research or the exercise of professional judgment. Neither EYGM Limited nor any other member of the global Ernst & Young organization can accept any responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate advisor.

The views of third parties set out in this publication are not necessarily the views of the global Ernst & Young organization or its member firms. Moreover, they should be seen in the context of the time they were made.

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Craig BakerManaging Editor of Citizen Today and Leader of Government & Public Sector Advisory Services

Philippe Peuch-LestradeGlobal Government & Public Sector Leader

1020918.indd (UK) 12/2010. Artwork by Creative Service Group.

December 2010 05

Although their responsibilities differ from market to market, state-owned enterprises are — and will remain — key players in the global economy, says Alessandro Cenderello. But what do citizens think? And what do these organizations need to do to safeguard their role in the future?

Best in class?

More than 20 years after the privatization boom began, state-owned enterprises (SOEs) remain a large part of the world economy. Given their ascendancy in sectors such as defense, transport, and now banking, in some respects they are now more relevant than ever. In practical case studies, interviews with a variety of SOE experts, and a survey of 12,000 citizens in 24 countries, Ernst & Young found that the role played by SOEs differs from market to market. In China, for instance, the central Government controls 17,000 SOEs and local governments control over 150,000. Conversely, India operates just 240 public sector enterprises outside the fi nancial sector, but one of them is the world’s largest commercial employer, Indian Railways, which employs 1.6 million people.Governments become shareholders for many reasons, not least the recent global economic crisis which saw large parts of sectors such as banking and automotive slip into public control. Through government ownership, the state can sustain sectors of long-term strategic or even national security interest that are presently uneconomical for private investment.

December 2010

Although there is a general perception that SOEs underperform the private sector, nearly 40% of the citizens of 24 countries interviewed earlier this year on behalf of Ernst & Young believe that SOEs deliver better service than the private sector.The survey revealed that, in terms of public perception SOEs can match or even exceed private company performance. The results varied considerably by country. Saudis were the most favorably disposed to SOEs, with nearly two-thirds of those surveyed saying they delivered better service than private fi rms. India (60%) and Spain (51%) were the only other two countries where a majority agreed with this. South Africans (17%), Japanese and Indonesians (both at 29%) were the most skeptical.

Valuing the quality of services that SOEs provide, however, does not necessarily mean citizens perceived them to be more effi cient. Only in France did a majority of those polled believe that SOEs are more effi cient than private companies. In India, despite the fact that a high proportion of people believed SOEs provided better service, only 12% agreed they were more effi cient. For the two countries where the perception of service quality of SOEs is most positive, (India, 53% and Saudi Arabia, 59%) a majority believed that managers in SOEs are better than in private

fi rms. In particular, Indian SOEs, with their professional and autonomous management, receive positive recognition by Indian citizens. In contrast, only 17% of French citizens consider managers from SOEs to be better than those in private fi rms, despite their positive views on SOEs’ effi ciency.The impact of the fi nancial crisis is seen most acutely when citizens were asked if it is in their countries’ interest that industries perceived to be important or sensitive should be controlled by the government. Results range from 86% in Saudi Arabia, 83% in Russia, 72% in China and 43% in Brazil, to 35% in the US and 16% in South Africa. In particular, respondents believed that governments should own organizations that operate in sectors such as defense (86%), postal services (71%) and banking (56%). Unsurprisingly perhaps, 88% of all respondents believed that SOEs are under political control, ranging from 80% of Germans to 96% of Indians. Such perceptions pose a great challenge for governments, which are increasingly asked to provide more independent governance structures for SOEs. SOEs are fundamentally different from private companies. They tend to have different missions and goals, different organizational cultures and different corporate governance mechanisms. Unlike private sector executives, SOE strategies tend to value economic and social goals equally, which gives them a greater willingness to make long-term investments and a greater degree of openness to the needs of different stakeholders. Improvements in how the SOE handles governance, strategy, and innovation lead to tremendous overall gains in achievement for the company:

Although execessive politicization is a ►threat, beware of one-size-fits-all theories of governance for the SOE. As some policy theorists say, the best governance solution for any particular company will depend on the market structure of the industry in which the company operates and the state of development in the country.

Due to the increasing turbulence in the ►business environment, strategy has become less formal and more flexible. Many companies focus less on long-term goals and more on general issues of strategic direction. Planning horizons have also shortened (two to five years is now the typical planning period). To emulate their successes, SOEs will need to develop a culture of strategic thinking which establishes objectives and plots paths to achieve them.The success of innovation depends largely on ►it being embedded in a company’s operating model and its talent management strategy, including also a human resource approach that features dedicated roles adequately supported by management bodies and designated funds.

Choosing private over public is not as straightforward a decision as stereotypes might imply — indeed, the choice is not even necessary. SOEs are not doomed to fundamental fl aws and perpetual underperformance. There is evidence, also sustained by citizens’ views, that SOEs can be successful and that there is further scope to improve; they will continue to play a key role in society and in the global economy.

To read the full report, Government as best in class shareholder, please visit www.ey.com/GPS

The SOE structure also enables the state to launch industries where start-up costs are signifi cant but private sector returns and property rights uncertain. For sunset industries too, the SOE can control a disruptive decline in an obsolete industry such as an outmoded shipbuilding, steel-making, or coal-mining sector, where direct subsidies are not possible and private ownership is no longer viable. SOEs are also often used as an insurer of last resort against catastrophic risks, such as natural disasters in the agricultural sector.SOEs in developed countries tend to be involved most often in strategic industrial sectors, such as hydroelectric power, oil, gas and coal, post and telecommunication systems, the main systems of transportation (both rail and air) and, to a lesser extent, fi nancial services. In emerging countries, SOEs are even more heterogeneous and the state may be as entrepreneurial as any conglomerate.The level of a country’s development is crucial. High-income country SOEs constitute an 8% share of GDP and 13% share of investment, according to the United Nations. For middle-income countries, the corresponding shares are 9% and 17%, while in the so-called least developed countries (LDCs), the shares are 14% and 28%.

Even within developed countries, the contribution of SOEs to the national economy varies substantially. Consider the relevance of SOEs for the largest economies in the eurozone (where we might expect a high degree of similarity). In France, SOEs’ turnover/GDP ratio is 15%, where the same ratio is less than 1% in Spain. Similar levels of variation also emerge from this research on the presence of SOEs in other regions. For instance, while France and Italy operate 17% of large SOEs in our analysis of 46 countries, SOEs are virtually absent in the US and the UK, which share a traditional, market-oriented model of capitalism.

The prevalence or absence of SOEs in a market is largely a political question. However, it seems that the success of SOEs in creating economic and social value for a society is far from mysterious. It depends largely on controllable organizational factors, including limited political involvement, protection for private minority shareholders, and clear regulations about company operations, particularly about the selection and direction of the board.An SOE’s relevance is and will remain lower in countries where the state traditionally plays a tertiary role (e.g., in the UK and in the US) in comparison to other countries where the state is still important as an entrepreneur or business decision-maker. In all countries, however, SOEs will remain a key bulwark defending strategic industries and guaranteeing the adequacy of infrastructure, such as electricity, power and communication grids, basic networks and transport.However, despite the renewed appreciation of the role the state can play in driving stable growth in a volatile world, SOEs still need to be reinvented to better suit the times. They can exist no longer simply to guarantee employment or low prices, as these factors might be more effi ciently ensured with effective regulation. Many also need to become more effi cient. The good news, however, is that the situation is not as bad as it is often reputed to be. In countries where SOEs are more present, their importance is perceived and fully supported by the public. The stereotype that all SOEs are “useless” and should be privatized is not the perception of the majority in most countries with a signifi cant SOE sector.

07

“ Improvements in how the SOE handles governance, strategy, innovation and corporate social responsibility can lead to tremendous overall gains in achievement for the company”

Alessandro Cenderello is Ernst & Young’s Global Markets Leader for Government & Public Sector.

“ Despite the renewed appreciation of the role the state can play in driving stable growth in a volatile world, SOEs still need to be reinvented to better suit the times”

The top fi ve sectors in which the world’s largest SOEs operate

By number of companies

1. Energy

2. Transportation

3. Telecommunication

4. Manufacturing

5. Oil and gas

Best in class?

Source: Ernst & Young, Government & Public Sector Center, 2010.

* Data for this research has been collected from the largest database of listed companies worldwide (BdvOsiris), selecting only companies for which the state was indicated as the controlling shareholder. For 2009, this procedure identified 266 SOEs, from which we excluded banks, insurances and other financial institutions. The final population included the 157 largest SOEs worldwide, representing 46 different countries.

SOEs are too much influenced by politicsStrongly agree/partially agree (% of respondents)

SOEs deliver better services than private firmsStrongly agree/partially agree (% of respondents)

Number of companiesDistribution of world’s largest SOEs by country*

India

96%

60%

9

France

82%

34%

9

Italy

89%

31%

9

Canada

84%

37%

6

Germany

80%

40%

6

Saudi Arabia

82%

64%6

Brazil

91%

43%5

Poland

89%

33%

5

Sweden

81%

30%

5

Mexico

83%

41%4

Russia

86%

32%3

Australia

85%

46%

2

United Kingdom

81%

46%

2

South Africa

93%

17%1

Turkey

89%

47%

1

Belgium

90%

30%

1

China

94%

43%

1

South Korea

94%

45%

1

December 2010 09

Mapping government and enterprise around the world

Source: Government as best in class shareholder, Ernst & Young, 2010.

Since the 1980s, conventional wisdom has held that the private sector is always more effi cient and that governments should therefore place as much of the economy as possible into private hands.

Today, the idea that the private sector model is always and everywhere the best way to create wealth, now seems doubtful to many policy-makers — especially as several of the most vocal proponents of the idea belong to investment banks that now, temporarily at least, have been rescued with state investments. Indeed, this idea was deeply reinforced due to the fi nancial crisis, when citizens were obliged to devote their taxes to enable private corporations to survive.

Other clues can be found not in economic statistics but in the perception of more than 12,000 citizens in 24 countries we surveyed, who reported they had largely positive feelings about the state-owned companies of their own countries. The depth of their positive feeling suggests that citizens see a special value in state-owned enterprises.

December 2010 11

2020 visionBen Lucas examines how to reshape public services for 2020 — from social security to social productivity

13December 2010

The developed world has just been through the deepest recession since the Second World War, short-term economic prospects still look uncertain and most countries face unprecedented public expenditure cuts. That is why the UK’s 2020 Public Services Commission, an independent think tank, has concluded that we should question whether the public services model which has served us so well for the last 60 years now needs to be reassessed.There are a range of forces which are pushing public services toward a new model and at the same time there are powerful pull factors arising out of the different expectations we have for ourselves as citizens. The debate about public services is, not surprisingly, dominated by the immediate fi scal and economic context. But the scale of medium-term demand challenges and cost pressures which public services face across the world is just as ominous. For example, in the UK, the number of people over the age of 85 is expected to increase by 50% by 2020, putting pressure on pensions, health, social care and other services. Alongside these demographic pressures, there are also climate change and globalization trends which will add to the cost of public services. These pressures raise fundamental questions about public services. Are they affordable on the current basis? How can they respond to the new demand pressures? And why have they not been delivering the social outcomes we might have hoped for? These are not just technocratic management questions, they are issues of central importance to modern democracies. Most welfare states were established on the basis of an implicit social contract in which, in return for paying tax and National Insurance, citizens could be assured of a safety net from cradle to grave. While recently there have been attempts to replace the passive citizen with the empowered consumer, this too has many limitations. It is an inadequate way of understanding the democratic relationship between citizens and public services. Moreover, encouraging people only to behave as consumers of services also runs the risk of promoting irresponsible consumption. And recent developments in cognitive science and behavioral economics have increasingly cast doubt on the extent to which we behave as rational economic actors. The 2020 Public Services Commission argued that we need a new public services settlement which inverts the current model. The starting point should be the citizen not the center. Citizens live in a social context, so the basis of a new deal should lie in social citizenship. We should have a duty to contribute to society as well as a right to receive support — responsibility and reciprocity lie at the heart of a more resilient society. Social value in public services is jointly created by citizens and services. The world’s best hospitals and schools cannot on their own produce the best social health and education outcomes, that requires patients, students and parents to play their part too.

Public services should be judged by the extent to which they help citizens, families and communities to live the lives they choose. At a time when state resources are under pressure, we need to mobilize citizen and social resources more effectively. Instead of performance targets, the new tests should be about how public services can: help create social value for citizens and communities; enhance citizen autonomy, capability and resilience; unlock citizen resource; support existing social networks and build collective capacity. Three fundamental shifts are required to move toward a public service model designed to promote social productivity. There needs to be a shift in the culture of public services — public services must engage and enroll citizens, families, communities and businesses in creating better outcomes as partners:

Rather than the state carrying out on our behalf a review of the nature ►and scope of the public services settlement, it should be citizens who shape this — on the basis of large-scale local deliberation, where determining priorities will be most controversial.

Our own research shows that citizens want to be involved in ►determining local public service outcomes, for example with schools. So parents, students, local communities and businesses should be much more engaged in the process of education, working with teachers to create open curricula that better reflects local needs. In the 1980s, when money was tight, it was public realm services — ►such as parks, libraries, leisure and community centers — which were the first services to be cut. The question now is can we find more innovative ways of mobilizing social resource to create alternative models, including turning these services into local mutuals or social enterprises?

The second shift is in power, away from the center toward the citizen and the locality. Top-down delivery cannot create services that refl ect the needs and capabilities of 21st century citizens. Services should start with citizens. What does this mean?

Individual budgets — wherever possible citizens should be given control ►of the money previously spent on them.Local neighborhoods should be able to control local services, with ►neighborhood commissioning, in which local communities appoint a social enterprise to integrate children’s, welfare and housing services according to their local needs.Duplication between services should be removed by creating pooled ►budgets between most public services at sub-regional level, which enable areas to restructure services around local social priorities.

The third shift is in fi nance, to better align funding with purpose. Public fi nance is often far too opaque. Such a lack of transparency seriously undermines trust and makes it harder to have a proper public debate about the choices we face. The fi nancing of public services should be more open, and better aligned to purpose:

Citizens should have an individual social welfare account, accessible ►on-line, which would record, in real time and over the life cycle, contributions they have made and the benefits and services they have received. A form of this has already been developed in Denmark, the idea would encourage both greater responsibility and transparency.Co-payment and partnership funding models, which have been ►developed in countries like Singapore, should be used where services generate personal as well as public benefit, such as higher education and long-term care, with the possibility of an additional National Insurance contribution for people over the age of 45 to cover the costs of care and support in old age. Social impact bonds and other forms of social finance, which pay ►returns on improved outcomes, should be developed to enable investment in prevention and early intervention — with priority being put on developing social investment markets.

For localities, our report offers a model for building social and economic resilience in their communities, while at the same time restructuring services and reducing costs. And for national states, it proposes a more strategic and enabling role, establishing a framework of social rights, undertaking strategic investment and equalizing resource allocation.There are a number of currents in public policy which are likely to pull public services in the same direction. But none of these have yet converged around a new role for public services and the state. The emphasis which the 2020 Public Services Commission has put on the role of public services in promoting social productivity offers a way of doing this. It provides a framework for public service reform and civic renewal and a criteria for assessing the value of public spending.

With strong economic growth and a World Cup and Olympic Games fast approaching, Brazil is preparing for a sustained period in the global spotlight. Here, Sérgio Ruy Barbosa talks to Ernst & Young Brazil about his responsibilities as head of planning and administration for Rio de Janeiro

The man with

the plan

Sérgio Ruy Barbosa

Ben Lucas is Director of the 2020 Public Services Trust. Read more at www.2020publicservicestrust.org

“ Public services must engage and enroll citizens, families, communities and businesses in creating better outcomes as partners”

2020 vision

“ Public services should be judged by the extent to which they help citizens, families and communities to live the lives they choose”

15December 2010

Few countries around the world are looking to the future with as much hope and expectation as Brazil. Not only is the country set to host the World Cup in 2014 and Olympic Games in 2016, its vast natural resources, population of more than 190 million and rising, and surging economy means that in this global era of spending cuts, its future prosperity seems assured.But a strong economy and increasing population brings its own challenges, not least for Brazil’s infrastructure and public services, both of which are nearing their capacity. For Sérgio Ruy Barbosa of Rio de Janeiro’s Planning Secretariat, the opportunity to help shape the future of his city is one he is seizing with relish. However, the challenges remain daunting.“I think we need to strengthen the partnership between the various government entities – the city, state and federal government”, he admits. “So, for instance, more funds are needed. In this regard, the Brazilian Development Bank (BNDES), which is the main fi nancing agent for development in Brazil, has been collaborating with the states.”

Since its foundation in 1952, BNDES has played a major role in supporting the expansion of Brazil’s industry and infrastructure. Its operations have evolved and now include support for exports, technological innovation, sustainable socio-environmental development and the modernization of public services. Barbosa suggests that the system is not fl awless. “It is very diffi cult not only for states but also for cities to withdraw funds from BNDES to invest in projects to improve management,” he says. “Good management requires cash, especially if you work within the scope of the Government of the State of Rio de Janeiro, which has more than 85 associated agencies.“For example, BNDES — supported by the Planning Ministry and the National Monetary Council — started a credit line (called PMAI) for state governments. Although a great amount of money has been made available for the 26 states and the Federal District to improve management, states still need much more. Thankfully, BNDES is making a big effort to improve and facilitate extra

funding for small cities. On the other hand, small cities still have limited human resources and know-how to develop projects for fund-raising as it is complex to prepare loan agreements, projects and its development.”And even Rio de Janeiro, future host of the Olympic Games and major world city, is far from immune from the shortage of resources. “We need more lines of credit to support the public management of the city,” says Barbosa. “In Rio, the investment in public services and infrastructure between 2007 and 2010 was worth approximately R$120m. Of this amount, R$34m was funded by the State Treasury and the remainder by BNDES, the Inter-America Development Bank, and the World Bank in partnership with Petrobras, a semi-public Brazilian multinational energy company headquartered in the city.

“We had to negotiate these signifi cant loan agreements to guarantee the sustainability and feasibility of the projects the city intends to implement. If we had not pursued these other resources, we would end up with severe shortages because the state has many other important strategic priorities also requiring funds — such as sanitation, mass transportation projects and so on. It is simply very challenging to obtain funds to improve public services — there is not enough to go around.”Given the scarce resources, Barbosa believes that it is critical for public servants to receive better, more comprehensive career support to help maintain the delivery of essential public services in this rapidly developing environment.

“While the private sector is specialized and focused on one or two themes, the public sector faces a range of challenges and issues, such as public security, health, technology, infrastructure and others which demand more innovative and creative managers to deal with such situations,” he says.“We are seeking to put in place better human resource qualifi cations for those of us working in public services. Rather than receiving a long-service bonus for working in the Government, our staff will now go through an individual performance evaluation and will be compensated for strong performance. Another part of their compensation package is based on their academic development and if they have a postgraduate, Master’s or PhD.“There is also an obligation on the part of the Executive Branch to provide annual training. An annual list of courses must be made available and in return they must take part in an annual program and log a minimum number of training hours periodically.

“And we’re hiring. We’re looking for specialists in government management, planning, budget analysts and public fi nance experts. When this recruitment drive is over, we will have hired 500 people dedicated to high-level management positions. Our goal is that, in the future, these people will hold a signifi cant proportion — 40% to 50% — of the positions of undersecretary, chief of staff, deputy undersecretary, superintendent, company offi cer, and so on. This means we will be like the Federal Government, which has had this career support in place for more than 25 years.”Barbosa, aged 44, is himself a veteran of Brazil’s public services. A graduate in social communication, he holds a Master’s degree in public administration and is currently studying for a doctorate in administration. Over the past 20 years, he has held a number of public sector positions, including Planning and Tax Secretary of the municipality of Duque de Caxias and Counselor of the Public Services Regulatory Agencies of Rio de Janeiro. He has recently being elected the President of the National Council of State Administration Secretariats (CONSAD), which unites state management and administration secretaries in Brazil to debate practices, procedures and the trends in Brazil’s public sector.

Brazil is the world’s fi fth largest country, both by geographical area and by population. Barbosa believes that harnessing the country’s full potential will require both the public and private sectors to work together. “I think the state has a very prominent role to play in fostering long-term development,” he says. “So for example, when the Government offers its support to projects such as the Olympics and the World Cup, it is indicating that it believes that Brazil will have an important role as a tourist destination and promoter of events. These global events require long-term improvements in areas such as sanitation and public transportation, as well as developing the supply of accommodation and services to visitors such as restaurants and entertainment. At the same time, the host city will benefi t from a legacy of vastly improved sporting facilities.”Barbosa is also keen to highlight Government’s role in fast developing industries such as oil and gas. “When the Federal Government proposes a change in the regulatory framework, it clearly indicates the future direction of the oil industry,” he says. “The Government must provide the infrastructure for this industry development, to support its logistics and the people whose jobs are directly or indirectly linked to the industry — many of whom live in Rio de Janeiro.”In time, Barbosa foresees Brazil’s Government — like many of its counterparts around the world — increasingly turning to online service provision, both to improve effi ciency and to be as cost-effective as possible. “We will have a state that plans, a state that provides culture, a state that fosters movement,” he predicts. “There will be increased use of the internet for service provision so that employees, retirees, pensioners and citizens who use public services can receive them more conveniently and rapidly access essential services.”Barbosa sees tomorrow’s Government as a planner, driver, provider of infrastructure and of web-based streamlined services — whether it’s through the internet itself, through Twitter, Facebook or blogs. “In three years’ time, we’ll be talking about things that we can hardly imagine; those who don’t know, can’t even imagine,” he says. It’s clear that for all Brazilians, exciting times lie ahead.

“ While the private sector is specialized and focused on one or two themes, the public sector faces a range of challenges and issues which demand more innovative and creative managers”

“ In three years’ time, we’ll be talking about things that we can hardly imagine; those who don’t know, can’t even imagine”

Claudia Valenzuela is an associate director with Ernst & Young’s Government & Public Sector practice in Brazil.

Brazil factsFull name: Federative Republic of Brazil

Population: 193.7 million (UN, 2009)

The country is divided into 5 regions (Center-West, North, Northeast, South and Southeast), which are themselves divided into 26 states plus the Federal District that houses Brazilian capital Brasília

According to Ernst & Young, outlay for the World Cup will run to R$29.6b (US$17.2b)with the bulk of this amount allocated to investment in stadiums, media centers, new access roads and hotels. Brazil’s public sector will provide 42% of the initial investment and the rest will be fi nanced by the private sector.

Although R$29.6b (US$17.2b) is a large sum, Brazil’s investment into the World Cup will easily be worth it: Ernst & Young calculations show that the production of goods and services for the football tournament will run to R$112.79b (US$64.97b) — a sum almost four times larger than the initial investment. Benefi ts in terms of income generated from investment are expected to total R$63.48b (US$36.57b).

Area: 8.55 million sq km (3.3 million sq miles)

Major language: Portuguese

Major religion: Christianity

According to Embratur, the Brazilian Tourist Board, Brazil plans to pump an estimated US$14.4b into Rio before the Olympics. Seventy-two percent of that will be used to set up infrastructure, including public roads, transport and hotels, and construction of sports venues.

The man with the plan

17December 2010

Advancing Australian health care

David Panter’s eclectic public sector career has taken him from the UK’s National Health Service to a senior role in local government to a new position shaping South Australia’s health system. Here, he talks to Jim Birch about ensuring health care can cope with rising demand, the prospects for reform and the challenges of designing a new hospital fi t for the challenges of the future

19December 2010

Six years ago, Dr. David Panter joined the many UK residents who leave home to start a new life in Australia. Lured not by the sunny weather but by the opportunity to lead South Australia’s health reform program, he has no regrets.“Part of what attracted me here was the fact that the Government at that time was setting out on a journey of reform,” he explains. “It had a very clear understanding of what it wanted to achieve and seemed very committed to achieving that. And certainly my limited experience of having lived here for six years — I’m now an Australian citizen — is that this commitment has been unwavering. This has enabled our project and the broader health reform agenda in South Australia to really gain momentum.”His role as Executive Director of State-wide Services sees him responsible for clinical services planning within the state. “Across the world, in developed countries, the main health reform agenda is the same,” he says. “It’s about how do we make our hospitals work effectively given the growth in demand due to ageing and chronic disease? How do we shift the focus to prevention and primary care in order to try to offset and prevent some of that burden falling on the hospitals? So that agenda, whether you’re talking about Canada or the US, Europe, Australia or New Zealand, it’s all the same.”

Certainly, Panter’s experiences in the UK leave him well placed to drive this agenda forward. Having originally trained as a psychologist — “I’ve got a PhD in Development Psychology, so I spent three of four years working with under fi ves and I’ve always said that’s held me in good stead later in life for working with all sorts of people” — he spent 15 years in senior management positions in the National Health Service (NHS).“I suppose what characterized my various jobs while with the NHS was that I either went into organizations where something new was happening, or I went into organizations that were not doing as well as they should and the target was to improve their performance,” he recalls. “I wouldn’t want to be perceived as a sort of cardigan-wearing safe bureaucrat. I feel very fortunate in being a gay man in that the process of coming out and recognizing my sexuality has enabled me to take risks and challenges and to speak out about things. And for me doing that in a leadership role does create the space for others to think likewise and to rise to the challenge.”His UK public sector experience has not been limited to health, however, as his CV includes a stint in local government as Chief Executive of Brighton and Hove Council, located on the South Coast of England. It was a somewhat unusual move, it transpires. “Local governments tend to recruit from within its own ranks, but Brighton’s new Labour Council recognized that they were failing to deliver,” he says. “They wanted to bring somebody in who didn’t have a local government background and who could therefore do things differently and challenge. And so I spent about four years challenging and sorting the systems out and it went from being a poor performing to an excellent performing council during that period of time.”The role exposed him to a broad range of responsibilities, including 100 schools, street cleansing, the tourism business, social care and much else. “It meant that, as an individual, I got to know a little about a lot of things but I was missing the depth that I got from working in just one area. And so that was one of the reasons for wanting to move back into health. But I was unsure of how I was going to do that. And then the opportunity was put to me to come here to Adelaide, and that was a chance for me to get reengaged and also to have the challenge to translate my experience into a different cultural context.”

There’s certainly no doubt that his is a bulging in-tray. Much of his time is taken up with leading Australia’s largest public-private partnership: the new Royal Adelaide Hospital project. Building the hospital would be the biggest construction project in Australia since the building of the new Parliament House in Canberra.“I’ve had experience with private fi nanced initiatives in the UK before I came here,” he says. “However, there is no doubt that we are negotiating this project in an entirely different fi nancial market that existed six years ago. We have had to work very closely with the bidders and their fi nanciers to ensure that the objectives of the project and the value to money to the state are not compromised.” Panter’s pride in the project comes through loud and clear. “It will be different from every other hospital of its kind in this country in many ways,” he says. “For example, it will be the fi rst public hospital in Australia with 100% single patient rooms with ensuites. It will also embrace a new patient-centered model of care based upon patient pathways. Consequently, it won’t have a traditional emergency department. Instead, it will have an emergency services area, taking up a large area of the new hospital and made up of sub units.“Like in a traditional emergency department there will be a resuscitation area, a triage and diagnostic area. But then there will also be an acute medical unit and an acute surgical unit. Each of those units or sub units that make up emergency services will be managed by the right clinicians for that service within the hospital and not all under the control of the emergency doctors. This is why it’s been such a critical part of our health reform process because it’s been a blank sheet for all the clinicians, doctors, nurses and health professionals across the state to think differently about the model of care they provide.”

To achieve a strong level of engagement with clinicians, Panter and his team tailored their approach. “What motivates our doctors is very different to what motivates the nurses, and then where they sit in terms of their career also infl uences what they are thinking they want out of the facility and out of the model of care,” he says. “So we are very fortunate that we’ve got a clinical senate which is state-wide and they’ve acted as the focal point for all of the reform of the model for care and signed it off at every stage.”

The globalization of the public sector, too, has played a signifi cant role. “The other key thing that I think has been very important for South Australia (and I’d argue Australia) is to bring in folks from across the world to inspire people, to hear their stories, to share their concepts and provide a bit of a jolt to the system,” he says. “They can say, this is what you might think here, but actually your colleagues in Canada or in Germany or in Scandinavia are now doing this. And that’s led as well to getting groups of clinicians, and politicians out and about to see some of those activities in practice.”Also high on Panter’s agenda is tackling the rising pressure on the hospital system. “The time bomb of chronic disease is already there within our communities,” he says. “That, combined with aging, means that pressure on the hospital system been growing at something like 6%–8% per annum for the last 15–20 years — in terms of numbers of presentations to the emergency departments and then follow-through admissions into public hospitals. So our goal was to develop primary care to try and stem that rate of growth to around about 2% per annum. We have now just come through our second fi nancial year of actually achieving that target.

“To achieve that, in the second year in particular when we had an infl uenza outbreak in the winter, indicates that something is happening as a consequence of what we are now doing, compared with what we weren’t doing couple of years ago. A lot of evaluation is under way to pinpoint which bits are really working and which bits are working less well. But the positive effect now is something that simply can’t be denied.”

And yet the challenges remain profound. “We should not lose sight of what might also hit us next,” says Panter. “So if we start to see some of the activity around climate change coming to further fruition, one would argue we move back to more infectious disease-type health issues. In say 20–25 years, time, we may well need more single rooms with much more infection disease control. So the demand is there so it’s whether or not the system will be able to respond to that.”In planning ahead, Panter and his colleagues are looking at what has gone right — and wrong — in the history of hospitals over the past 100–150 years.“When you look at those that have held us in best stead over that time, it’s no surprise that it’s been those Victorian hospitals,” he says. “Because when you look at their basic physical infrastructure, that acts as shell that you can fi t out and refurbish in a variety of ways. You compare that with some of the hospitals from the 1950s, 1960s and 1970s which got far too specifi ed too early, and too specifi c for a particular purpose that it is often easier to knock those down and to bulldoze them and start afresh, than try and refi t and refurbish them.”Panter is also keen to address the future of workforce reform. “My one area of concern, again comparing Australia to other countries and other systems, is where we go on this issue,” he admits. “I think that we, for a whole variety of reasons, have still got a lot of factionalism — not just between professions such as doctors and nurses, but also within professions, and the boundaries between specialities which seem very tightly drawn at a time when, in other countries and other systems, they are getting broader. I think we’ve still got some way to go; we’ve made some good advances but there are still not as many of those across Australia as one would want to see, given what we see in other countries such as Canada and the UK.”But, for the time being at least, the priority is driving forward the new Royal Adelaide Hospital. “In recent weeks, as we draw towards the conclusion of the process, I’ve been describing myself as sort of the repository of everybody else’s nervousness,” he admits. “This is understandable given it is a very big deal for the state and you only get the chance to build a hospital of this importance once in a lifetime. We need to get it right!”

Advancing Australian health care

Jim Birch is a partner with Ernst & Young, Australia, where he leads our health and human service practice. He is also Ernst & Young’s global coordinating partner for health care, operating within our Government & Public Sector practice.

“ Across the world, in developed countries, the main health reform agenda is about how to make our hospitals work effectively given the growth in demand due to aging and chronic disease”

“ It’s been very important for South Australia to bring in folks from across the world to inspire people, to hear their stories, to share their concepts and provide a bit of a jolt to the system”

“ What motivates our doctors is very different to what motivates the nurses”

21December 2010

The Canada School of Public Service has a unique window into public services, with access to decision-makers and specialists who have in-depth knowledge of government priorities and learning requirements. Julie Mills talks to its director, and two graduates, about the importance of lifelong learning for public servants in Canada — and around the world

When you fi rst talk to the head of the Canada School of Public Service, Guy McKenzie, you are struck by his passion for the School, pride in public service institutions and his commitment to the federal civil service. Having started his 28-year public service career at the Department of Indian and Northern Affairs, he worked in a variety of departments while rising through the civil service ranks. Prior to his appointment as President/Deputy Minister of the School in March 2010, he was Deputy Minister at Canada Economic Development for the Regions of Quebec, before which he was Associate Deputy Minister of Transport, Infrastructure and Communities with particular responsibility for Crown corporations. He describes himself as an operational manager who believes in a civil service based on values and ethics. The Canada School of Public Service was created to address the learning needs of public service employees. Serving more than 275,000 public service employees and educating over 70,000 participants each year, it covers a range of learning experiences from orientation sessions for newly hired civil servants to executive leadership programs for senior executives selected based on recommendations from senior deputy ministers.

Back to school

Committed tomaking a difference

Craig Baker argues that tackling complex and important challenges with passion is what

drives David Panter and Sergio Ruy Barbosa — and countless public servants

around the world

The interviews with David Panter and Sergio Ruy Barbosa exemplify what is special about public service and public servants. Although they come from either side of the world and work in quite different fi elds, they share many common characteristics — with each other and with you, our readers. They can perhaps be summed up in three words — complexity, importance and passion.Complexity comes in two key forms. The issues that public servants deal with are typically complex — they can be hard to defi ne, hard to solve, hard to measure — and that makes them hard to manage. Complexity also comes in the form of multiple stakeholders often with powerful but confl icting aims, objectives and opinions. The combination of these complexities calls for high order management skills to be able to translate the needs of citizens and the aims of their elected representatives into manageable and deliverable programs of action.The signifi cance of the complexity challenge is all the greater because of the magnitude and importance of the issues at stake. Often they are matters of literally life and death, but they are also about livelihoods, quality of life, economic prospects, future development and sustainability. These issues can often affect many individuals on a daily basis — and whole societies over years and even generations.But perhaps most of all, the characteristic that unites public servants around the world above all others is a passion to make a difference. To take these important and complex issues, and to work with the many stakeholders and vested interests

to develop solutions that balance those interests — and critically reconcile unlimited demands with limited available resources — is what public service management is all about. And in many countries these challenges are particularly acute at the moment as governments wrestle with the aftermath of the global fi nancial crisis and huge public defi cits.Helping public servants navigate their way through these complex mazes is the purpose of Citizen Today — and Ernst & Young’s global Government & Public Sector practice. The magazine — and the network that it supports — shares information and experiences, lessons learned about what works and what doesn’t, so that colleagues from other countries and other spheres of public service can pick up on good ideas, and also learn from the mistakes of others to avoid repeating them and to short-circuit the path to success. Information about good practices and performance benchmarking is often hard to access in the public sector and we are committed to helping to ease that process.Another key part of the framework that is required to support public servants rise to these challenges is good governance. We observe time and again in all spheres and all countries, that clarity about governance, leadership and accountability are fundamental to enabling public servants to deliver successfully on citizens’ needs and politicians’ mandates. Without this clarity, it is impossible to reconcile the confl icting demands, to measure progress and to say “no” when the need arises — as colleagues from the Canadian School of Public Service observe elsewhere in this issue.

As part of our contribution to informing debate in this crucial area of public policy delivery, we have recently been undertaking a survey of public service managers around the world to understand their experience of translating policy intentions into programs to deliver tangible outcomes and measurable progress. The fi ndings from the survey will be reported in a future edition of Citizen Today, but it is clear from our preliminary analysis that it is an area that all public service organizations fi nd both diffi cult and critical to their success or failure. Indeed, the trend is for this to become increasingly widely recognized as central to stimulating innovation, getting more for less and harnessing the private sector to deliver outcomes on a contractual basis — and thereby increase success rates and improve value for money.Differences between public and private sectors are often overstated but the absence of a single, simple measure of success — the “bottom line” — is perhaps the defi ning difference. The skill, dedication and passion of public servants to manage this complexity and deliver essential services day in, day out to their fellow citizens, is what really sets them — you — apart. And creating an effective performance management framework is a crucial enabler.

Craig Baker is the Managing Editor of Citizen Today and Leader of Government & Public Sector Advisory Services.

23December 2010

The School also plays a key role in providing advanced leadership training for some 4,500 participants each year. The leadership development portion of the curriculum is designed to support new and senior executives in acquiring the needed competencies as they progress through the public sector ranks. The curriculum is designed to facilitate the executive to: “Do your job,” “Master your job” and “Prepare for your next job.” Located about 10 minutes walk from the Houses of Parliament in the LaSalle Academy and Donnelly House, the School’s buildings date from the 1850s and have a collegial feel to them, evoking images of scholars and dedicated students.As new head, McKenzie is keen for the School not to rest on its past successes. His vision is “to deliver our passion for public service learning with a focus on quality, relevance and effi cient operations.” The School is shifting its learning from pure classroom training to a blend of classroom, online, interactive and exchange programs. In the future, he would like to take advantage of blended learning and new technologies, including social media. Key challenges that he expects to encounter during his tenure include competition from external learning providers. McKenzie believes that “if we offer high-quality learning that is relevant to public servants at competitive rates, we will be the learning service provider of choice to all public servants.”

McKenzie explains that the School is relevant for both Canadian civil servants and worldwide. Public servants work increasingly in a globalized environment, which is more complex and moves faster than ever before. The School plays an important role globally as many countries look to Canada to build their public service in a non-partisan, apolitical and professionally based manner. Also, changing demographics in Canada have resulted in public servants moving up the ladder faster, requiring them to acquire knowledge and skills at an accelerated rate. He believes that a common learning provider, such as the School, supports this increased civil servant mobility. He also believes that the next generation of public servants will need new skills and a strong network to sustain government transformation efforts.

One of the School’s most prestigious courses is the Advanced Leadership Program (ALP). Twenty-fi ve senior civil servants are selected annually by senior deputy ministers to participate in the program, which runs over a 13-month period and includes 50 days of formal learning. Participants gain Canadian and international perspectives on key issues that shape federal policy-making and program delivery. The ALP prepares aspiring senior executives for their next role within the public service. It is demanding and requires strong support from families and work colleagues. It includes both traditional classroom learning as well as informal learning as participants travel outside Canada meeting public sector colleagues, business people, non-government organization representatives, writers and ordinary citizens.Daniel J. Caron, Librarian and Archivist of Canada, and Joe Wild, Assistant Secretary to the Cabinet, Privy Council Offi ce, are both former ALP students. Wild explains that the program allows participants to “sharpen the management side of the toolbox” and make aspiring senior-level executives more self-aware of how they impact those around them. A graduate in June 2009, Wild still keeps in contact with fellow ALP participants on a regular basis and is keen to underline the camaraderie and sense of community that develops amongst the 25 participants during the 13-month course. This network of colleagues provides an enduring sounding board and informal support system as these executives move into more senior roles where “subordinates” are far more common than “peers”. He cites having a “supportive deputy and a good team” as critical success criteria of the program. In fact, the ALP allowed his director to effectively replace him during the signifi cant blocks of time that he was away; training him to ultimately step into the role when Wild was promoted following completion of the program. In this sense, the program not only helps prepare its participants to take on new challenges, but those working in their teams as well.

Caron, meanwhile, likens the intensity of the program as equivalent to doing “another PhD.” He explains that, when travelling, the pace was not for the faint of heart, as he recounts the experience of being in Dubai one day and Mumbai the next day. Often the contrast between successive countries was dramatic. In preparation for international visits, he supplemented formal program materials on the destination countries by reading a novel set in the destination country. Key highlights from these international visits include seeing fi rsthand the importance of having a strong state and a mix of institutions. “You learn a lot about yourself as a country and you also learn the price you pay if you don’t have strong public policies,” says Caron. Both Caron and Wild remain involved with the School as presenters and facilitators and act as informal ambassadors for the leadership programs. “The vast majority of the leadership offerings are delivered by current and former public servants; many of whom have been past students of the School’s leadership program,” explains McKenzie. “The School is looking at ways of relying more on public servants for both the delivery of our products and services and their capacity to transfer knowledge and skills.”

“ Public servants work increasingly in a globalized environment, which is more complex and moves faster than ever before”

Julie Mills is a senior manager with Ernst & Young’s Government & Public Sector team in Canada.

Back to school

Guy McKenzie

25December 2010

The decision-making processes of policy-makers suffer from insuffi cient or inadequate measurements to use as a basis for devising and assessing policies. In other words, there is an ideological defi cit in how national and global challenges are generally addressed, due largely to a GDP and money-based economic focus which ignores the bigger picture and fails to account for other important components of a country’s wealth and quality of life (such as, for example, social health and environmental factors).But so much for the “what” — i.e., what policies consist of, and the basis on which they are devised. I would like to extend my analysis to the “how” of policies, in terms of fi nancing and delivery. In many developed countries, governments faced a fi nancial defi cit. It goes without saying that the situation has deteriorated further as a result of the global economic crisis. Therefore, the priority becomes fi nding the right balance between controlling the defi cit, cutting spending and increasing revenue, while simultaneously avoiding damage to public services and the economy. In other words, it’s about fi nding ways to safeguard strong policy-making from future fi nancial crises in order to continue to ensure public value and, most importantly, redirect public spending towards greater investment.

There is no doubt that increasing government effi ciency is part of the solution. However, it is also becoming necessary to consider other options and look further towards alternative ways of executing policy and other government functions. Indeed, the answer might lie as far as the opposite end of the scale to the government: how can the private sector be associated with management of operations to provide greater effectiveness and effi ciency.

The best of both worldsCombining the skills and dynamism of the private sector with the stability and public service ethos of government will result in better and more effective policy-making, says Philippe Peuch-Lestrade

The public sector can draw much inspiration from the private sector that can be channeled into the “how” of public policy. The interview we carried out with Germany’s Fraport AG as part of our recently released study Government as best in class shareholder, clearly exemplifi es this: the benefi cial changes in terms of strategy, structure and company culture undergone by the state-owned enterprise Fraport AG are tightly related to private sector infl uences. But the element of stability injected from the public sector also has an important part to play. There is a clear possibility to add value through the integration and cross transfer of public and private sector skills, knowledge and expertise.A re-allocation of duties and responsibilities to match the strengths and competences of private and public participants could therefore prove to be benefi cial for policy execution. In this sense, governments ought to focus more on policy-making, public management and control, opening the door to the private sector for more operational matters. Public-private partnerships (PPP) in the delivery of public services is a possible way of how this might work. Making its way around the world, it is a mechanism that is generating much interest: it improves effi ciency, transfers risk and acts as a way of dealing with budgetary constraints. At the same time, government agencies continue to set objectives, own the asset and oversee and control service standards while allowing the private sector to share the risks, improve services and reduce costs through good management and innovation, the latter of which is an increasingly crucial factor.

Nevertheless, the link between public and private I would like to put forth is not just one of PPP in the sense of a long-term contractual agreement between a government agency and a private partner for the delivery of goods or services. In other words, it is more than a procurement option for public infrastructure projects. I would like to focus on the actual, “literal” meaning of the three words that make up this acronym, the idea of a partnership between the public and the private sector to achieve a better fi nal outcome for citizens; something we might call the public-private synergy (PPS). The public sector could gain much from this kind of synergy, including the right practices and approaches to foster innovation in an organization, and benefi t from its positive effects. As it stands, we are in a world in which decision-making is fl awed by a double defi cit that needs to be recognized by policy-makers: an operational defi cit, where public funds are increasingly falling short of the needs of countries and societies. Moreover, we face an ideological defi cit where we look at the world shortsightedly, through an economic lens, and an exclusive fi nancial assessment.Following the acknowledgement of the current limitations, the trend that could lead to a solution seems clear: increasingly, the public sector should focus on moving outside the existing paradigms to fi nd new, innovative ways to look at how it carries out its functions, policy-making and delivery. It is important to distinguish between the what and the how: making space for a set of measurements and indicators, and an overall rationale that clearly refl ects and accounts for a wider set of aspects and public concerns is crucial for the what of policy-making. The next steps need to start moving toward assimilating the experience, skills and dynamism of the private sector into the how, combining them with the advantages of the public sector, therefore making the best of both worlds. This is what PPS could be about: transcending the relationship between public and private sector to successfully create the intended outcomes that the public expects. Moreover, it would be easier to integrate all stakeholders into the decision-making process, a move which would also strengthen accountability.

Philippe Peuch-Lestrade is Ernst & Young’s Global Government & Public Sector Leader.

“ The public sector can draw much inspiration from the private sector that can be channeled into the “how” of public policy”

“ Governments ought to focus more on policy-making, public management and control, opening the door to the private sector for more operational matters”

27December 2010

Can you tell us about your approach and the key factors for success?Lithuania’s infrastructure is among the most advanced in the EU. This, together with a strong talent pool and attractive support packages for investors, is crucial. Our universities are working hand in hand to build a Baltic-Nordic Service Hub; they are amending their curriculum and courses to tailor them to the needs of local and foreign investors. Moreover, Prime Minister Andrius Kubilius always emphasizes that Lithuania is a small but dynamic and fl exible country.

Is this different from what other countries and governments are doing?Investors say they very much appreciate the great emphasis the government places on attracting investment. We try to fast track priority investment projects to have them smoothly and rapidly implemented. As far as I know, not every country offers the possibility to personally meet with the prime minister or the minister of economy to discuss the planned important investments, but Lithuania does. I think this demonstrates our commitment to promote foreign investment in Lithuania as well as our fl exibile and dynamic approach. Also few countries’ governments engage in an ongoing dialogue with major investors face to face like we do in the Investment Advisory Council, where improvement in the investment climate is monitored and new ideas are generated by the Lithuanian Government and investors working together.

Upon arrival at the Ministry of Economy, you introduced signifi cant changes to the way this organization functions. What were the issues you were trying to address with this change? What were the expectations for the restructuring? Today, it is almost impossible to fi nd organizations without any ongoing reform projects and the public sector is no exception. Public administration during a period of economic crisis faced a paradox: on the one hand, budgets were reduced; on the other, we had to increase the resources dedicated to boosting economic recovery. The previous structure and organization of activities was not fl exible enough and so we had to increase effi ciency and prioritize our spending programs to demonstrate results.

The reforms were also necessary due to some external factors such as Lithuania’s membership in the EU and ongoing globalization. Some functions were moved to the newly established Ministry of Energy. Last but not least, one of the reasons I decided to involve myself in politics after having spent so many years in running businesses was my belief that a bureaucratic apparatus must try to help business, instead of adding to red tape.

Over the past year, Lithuania has announced a number of impressive foreign direct investment successes. Is this luck or a result of systemic efforts?We are part of the Baltic-Nordic region, which is renowned for its outstanding achievements in high tech and innovation. The ultimate goal is to become the Baltic-Nordic Innovation Hub by 2020; therefore we are determined to attract investment to specifi c sectors such as business-to-business services. It is now the Government’s key goal and principal task to provide state assistance to facilitate fast-track investment in Lithuania. So the outcome we talk about, like one of four global Barclays IT centers in Vilnius with 500 highly qualifi ed engineers, is defi nitely a result of our systematic efforts.

Reform in focusAs part of our regular analysis of government reform in countries around the world, Linas Dicpetris speaks to Dainius Kreivys, Lithuanian Minister of Economy

Following the recommendations of international consultants and the example of 13 other states, including Finland, Denmark and others, the present structure of the Ministry and organization of its activities refl ect basic priorities which include small and medium business promotion and the development of investment, export and innovation.

The Ministry’s work is based on project management principles where we outline the main projects and select the right teams for implementation. Line management guarantees performance and control of the Ministry’s functions; however, rigid distribution of roles among the staff prevents fl exibility in movements, whereas project management-based activities employ the available human resources to the maximum extent.

Have you already seen the results?The administration’s reforms are improving the Ministry’s effi ciency. These principles are essential in any business organization; however, state institutions must yet learn to live up to them.

In addition, I see our changes not only in structure and systems, but also in thinking and actions. Some 24 strategic projects have been registered; most of them are focused on reorganization, the optimization of different functions, establishing new organizations that implement our policy priorities such as innovation, increasing investment and improving the business environment.

One and a half years have passed since the introduction of project management in the Ministry, and I am pleased that other ministries and public authorities are interested in what we do and want to share our experience.

The Government published a report on the performance of state-owned enterprises (SOEs) in Lithuania, which indicates quite poor results. What were the reasons you undertook this initiative?The Lithuanian state is the largest owner of commercial assets in Lithuania and evidence of this should be in the revenue fl ows to the national budget from SOEs. It is important that the state manages its ownership role in a professional way. The government´s main objective with these assets is that they should create value for the ultimate owner, the taxpayers. We are aiming to implement the three principles outlined by OECD: transparency, political insulation and clear goals, so that these companies are capable of increasing the value of their assets. As long as these companies are owned by the state, they shall continue to be actively managed with the creation of value as the main objective.

You are encountering political opposition to introduce change in the way SOEs are governed and managed. Do you think it is realistic to implement these changes?Doing something you do not believe in is a waste of time. The very idea that SOEs have to be free from political infl uence, operate transparently and have clear goals and objectives is not opposed. It’s the implementation pattern that we are discussing. To my understanding, the most effi cient way is an absolutely centralized commercial model. Different countries have chosen a number of possible ways to manage SOEs and increase their assets. We have to decide on which of them is the most suitable.

Dainius Kreivys, Lithuanian Minister of Economy

29December 2010

Last year, the electorate in Japan voted to end nearly

50 years of unbroken rule by the Liberal

Democratic Party. Here, Toru Watanabe charts the

new Government’s story so far — and its prospects

for success

Gambit or

stalemate?

New Growth Strategy and major policy goals

Area for growth

Major goals by 2020

Environment/energy

Create a ► ¥50t market for environment-related industriesCreate 1.4 million new jobs ►Increase the rate of the next generation automobiles up to ►50% in the annual sales of all vehicles

Health care Create a ► ¥25t market for health-related industries Increase investments in pharmaceutical and elderly ►care markets

Asian economy

Create a ► ¥19.7t market for infrastructure Double employment levels by foreign fi rms to two million ►workers

Tourism and regional regeneration

Attract 25 million foreign visitors to Japan ► Encourage private investment for urban ►development projects

Science and technology

Create new markets for ICT and related industries worth ► ¥70t Ensure more than 50% of local government services are ►available online Make broadband available to all households ►

Employment/human capital

Make Japan’s educational standards the best in the world ► Increase the employment rate for women aged between ►25 to 44 to 73% Create 600,000 new student exchanges between Japan and ►foreign countries

of business and not-for-profi t organizations to respond to public policy issues through PPP/PFI and other mechanisms.As part of this new approach, in June this year, the DPJ Government unveiled a “New Growth Strategy” based on strategic investment in the environment, health care and other fi elds. By 2020, it aims to deliver GDP growth at annual rate of 3% (nominal base) and 2% (substantial base), and to achieve the nominal GDP at ¥650t, which is about 1.4 times the current fi gure.The strategy is aimed at maximizing potential from key growth areas of the Japanese economy. The environment, health care and tourism industries are expected to bring new demand for more than ¥100t as well as hundreds of thousands of new jobs. The program represents a direct attack on unemployment, which recently peaked at 5.5%. Under the Government’s plans it is expected to be reduced to about 3% by 2013. In addition, the strategy aims to boost inward investment by shifting the focus from developed countries to Asia. Much emphasis has been placed on strong political leadership. Indeed, the introduction to the New Growth Strategy document criticized past efforts for lacking strong guidance from the center. In order to increase the chance of success, this new approach will be target based, relying on numerical indices and milestones and objectives set by the CPU. However, some skeptics have warned that the growth target is too high, pointing out that the Japanese economy has not achieved such rates in the past decade, and that the strategy lacks specifi c measures for implementation.At the same time as commentators were warning over the growth program, Kan was also under pressure in September’s elections for the DPJ leadership, when who or what to blame for the defeat in the parliamentary elections proved to be a central issue. Kan narrowly survived a challenge from the party’s former Secretary General Ozawa — probably because party members favored Kan’s clean-cut image and felt he should not be replaced after only three months. However, the loss of control of the Diet remains a tough challenge for DPJ to overcome. Analysts point out several scenarios could occur, including a grand-coalition between DPJ and LDP and the early resignation of the prime minister followed by a general election next year.Kan’s reshuffl ed cabinet started work in mid-September, and the Government has so far basked in increased ratings in the opinion polls. However, if he fails to grip challenging policy areas such as the economy and diplomatic relations with China, the public’s support will soon start to fall away — even before facing up to the harsh realities of defi cit reduction by increasing the sales tax or others. Achieving a good balance between fi nancial rehabilitation and economic renewal is clearly a politically diffi cult puzzle. But the stable development of Japan’s political economy seems to rest on stronger governance and the persuasive leadership skills of political parties and their leaders, including DPJ and Prime Minister Kan. Only time will tell what the future holds for Japan and its citizens.

For Japan, a new era has dawned. Gripped by a sense of political and economic stagnation, last August, Japanese voters elected the Democratic Party of Japan (DPJ), bringing an end to almost 50 years of rule by the conservative Liberal Democratic Party. Confronted by a faltering economy, an ageing population, a declining birthrate and a huge government defi cit, the new administration has not had it easy. Its prospects have also been dimmed by defeat in parliamentary elections earlier this year.With the opposition now in control of the Upper House of the Diet, the Japanese Parliament, the task ahead remains daunting. The future success of DPJ as the ruling party will rest largely on three critical factors:

Government reform ►Creating new sources of economic growth ►Prime Minister Kan’s leadership ►

Following the seismic shock of its election, DPJ settled smoothly into Tokyo’s corridors of power. Yet while a new Government inevitably injected fresh talent and energy into Japanese life and politics, the initial progress was soon stymied by a party funding scandal. The controversy, combined with a storm over the relocation of

a US Marine Corps Air Station on the Island of Okinawa, forced Yukio Hatoyama’s resignation as Prime Minister, and he was replaced by his deputy, Nato Kan, on 8 June this year.Kan’s biggest immediate challenge was to preserve his party’s majority in July’s parliamentary elections. However, his decision to propose doubling Japan’s 5% sales tax to help tackle the government defi cit has since been cited as the main factor in DPJ’s heavy defeat. With the Diet now divided, it may prove diffi cult for the ruling coalition to pass legislation. DPJ has made more progress, however, with its plans to reform and enhance government. The party’s election-winning manifesto in 2009 set out proposals to tackle bureaucracy in government and to deliver genuine political leadership in policy-making. The recently introduced Government Reinventing Council (GRC) and the Cabinet Policy Unit (CPU) are seen as key steps toward this vision. The GRC was established to review and reform the national budget process and the national government’s overall systems, as well as to reconsider the relationship between the national and local government. Its most high-profi le initiative has perhaps been the budget screening meetings (Jigyo Shiwake). These meetings have

seen public servants discuss the merits and cost of various projects and programs with politicians before receiving offi cial approval to proceed. The whole process is streamed live on the internet and its transparency has attracted much popular support.Although the decisions made by the budget screening meetings are not legally binding, their recommendations provided valuable feedback to the budgetary process and helped reduce the budget by up to ¥690b in 2010. Renho, the State Minister for Administrative Reform whose responsibilities include the GRC, has proved to be an effective leader, with her popularity refl ected in her easy re-election to the Upper House. GRC’s focus has now shifted to what are perceived to be the national budget’s structural problems, particularly those issues seen as being under uncertain control of the ministries. Clearly, with Japan suffering similar fi nancial constraints as those affecting many countries around the world, stronger budgetary discipline is set to remain the primary challenge for its Government. The GRC is taking forward regulatory reform ideas and requests from the business community and the general public. Similarly, DPJ is set to continue its drive toward better public governance by mobilizing a coalition

Toru Watanabe is an executive director with Ernst & Young in Japan.

Certainly, the arrival of the internet has revolutionized the lottery — offering a route to more games but also prompting increased regulatory challenges. “By establishing themselves in countries with little or no regulation whatsoever, where they are able to take advantage of the very low taxes levied, newcomers setting up business on the internet present a tough challenge for the regulated sector, which operates in the service of the public interest,” comments Moner-Banet.

“The way in which the regulatory approach adopted in Europe, and throughout the world, which is essentially linked to nation states, collides with the global reality of the internet, makes the question as to whether tighter regulation needs to be introduced at a European or global level — be it via the European Union or

the World Trade Organization — an urgent one.”The consequences of this evolution are many, he continues. “At a European level, for example, the large number of complaints lodged by the private sector with the European Court of Justice is leading to confusion and uncertainty about the future of the sector. The challenge facing us, then, is how to continue to offer games that are both entertaining for the players and that are marketed responsibly and in a controlled manner. At the same time, we need to allow governments and benefi ciaries to fi nance their business in a way that is in the interests of the public and takes into account the evolution of the market, and particularly its interactive aspect.”Sports betting is another example of something affected by the deregulated activities on the internet. “An increase in rigged sports results has emphasized the danger that results if sports betting is not strictly regulated and managed by state governments,” argues Moner-Banet. “And there are new activities, such as poker, which used to be confi dential and are now becoming social phenomena, and these raise serious questions about market regulation and the need to combat excessive gambling, particularly among young people, who are the prime target of the organizers of these new activities, which are no doubt fun to play, but which, at the end of the day, are games played with and for money.”

While keen to emphasize that his is a role focused on encouraging growth — not stemming it — Moner-Banet concludes by stressing that effective regulation is the only route to ensuring that games offered by all operators remain attractive and guarantee social responsibility. “Without regulation being implemented at various levels, complete deregulation would make losers of all concerned, starting with the gamblers themselves,” he says. “The deregulation of the markets does not result in an increase in the quality, volume or prizes of the games on offer to the gamblers/consumers, but instead gives rise to ever-greater insecurity associated with gambling for money, in the shape of organized crime and social problems.”

31December 2010

As for Switzerland, Moner-Banet’s home country, the regulated casino and state lotteries sectors allow all areas of public life (retirement social insurance, sport, culture, social activities, and education) to benefi t from more than CHF1b a year by spending this money on causes in the public interest. “In a period marked by sharp downturns in state budgets, this source of income is essential for the upkeep of numerous activities and must not be sacrifi ced for the sole benefi t of a few unscrupulous operators who, in the event of unbridled deregulation, would keep this money for themselves,” he warns.Also important is the economic role of lotteries in Switzerland. Their traditional distribution network consists of small retailers (tobacco stores, newsstands, kiosks, restaurants, etc.) which are vast in number and spread throughout the whole country. “These local retailers often offer lottery games, along with a whole host of products and services, and maintain an important presence — both in busy shopping zones and, less centrally, in more remote neighborhoods and in villages,” he says. “The number of jobs generated indirectly by these thousands of retailers is signifi cant. In French-speaking Switzerland, for example, the 3,000 retailers earn CHF70m in commission a year. This revenue essentially funds almost 2,000 jobs indirectly.”

“ In a period marked by sharp downturns in state budgets, lottery income is essential for the upkeep of numerous activities”

While the prospect remains remote, the idea of securing a winning lottery ticket is a dream that unities citizens around the world, regardless of their background, status or race. Although they come in many formats and offer differing levels of prizes, lotteries are today relied upon not just for the chance of winning, but also as a valued revenue source that in these cash-strapped times can fund both public services and good causes.For Jean-Luc Moner-Banet, Director General of Switzerland’s Société de la Loterie Romande and member of the executive committee of the World and European Lotteries Associations, lotteries represent a sector that can do immense good for the communities in which they operate — but also require careful regulation and monitoring.

“Without state regulation and strict controls, and their operation left in the hands of the private sector alone, games of chance involving money inevitably engender money laundering and the problems associated with criminality,” he says. “Organizing them under strict state control ensures that profi ts are injected back into the communities that fund the games; be it by means of levying taxes and duties or, as is the case in Switzerland, by redistributing funds directly to benefi t the public.” Here, he cites the European example, where 72 lotteries account for sales in excess of EUR76b. They redistribute more than EUR22b to benefi t the public — for social, cultural, sports and educational purposes, and so on.

Crossing borders and jurisdictions, national and local lotteries are now an established part of community life around the world. Here, Pierre-Alain Cardinaux talks to Swiss lottery leader Jean-Luc Moner-Banet about protecting a valued revenue source, effective regulation and the future of gaming

The winning

ticket

Pierre-Alain Cardinaux is a partner with Ernst & Young Ltd in Switzerland.

“ Due to the rise of the internet, the question as to whether tighter regulation needs to be introduced at a European or global level is an urgent one”

Jean-Luc Moner-Banet

33December 2010

In September 2008, the world’s fi nancial system stood on the brink of total collapse but was held back from the abyss by unprecedented action from the public authorities. This inevitably led to a direct involvement by OECD governments in fi nancial services to a degree largely unprecedented since the Second World War. It is worth reiterating that we do not believe that stability in the global fi nancial system is by any means restored, nor that the crisis is in any sense over. To pursue a medical analogy, the patient has survived a heart attack, but is still in intensive care with the doctors clustering around the bedside debating how to prevent a relapse. How to do so, without at the same time irreparably damaging the prospects for growth in the “real” economy, lie at the core of the debate.The extent of government support for fi nancial institutions is staggering. Globally, it is estimated that in excess of US$13t has been committed in one form or another to support the fi nancial sector. As at February 2010, according to Ernst & Young research, in the EU over US$3.8t was deployed directly by national governments to stabilize and support fi nancial institutions, in addition to the €800m or so deployed by the European Central Bank in providing liquidity to the banking market, and the wider liquidity and economic stimulus packages provided by national governments.Of these extraordinary support measures, three-quarters consisted of state guarantees, with the rest divided between recapitalizations, assumption of risk positions, retail depositor protection, equity injections and outright nationalizations. Across the EU, 94 separate fi nancial institutions received some form of particular fi nancial assistance from their national government, with UK, Irish, German and Dutch institutions fi guring prominently. In the USA, 740 fi nancial institutions received capital investment worth around US$300b.No government intends or desires this level of investment to be permanent. While there is a determination that fi nancial institutions should be kept on a much tighter leash in the future (the “Never Again” school), and indeed, in some quarters, a desire that banks’ activities should be severely circumscribed, nowhere is it seriously argued that the domestic banking system ought to be nationalized as a matter of principle.

Governments do intend to reverse their investments and return the equity capital of healthy fi nancial institutions to private hands. When and how practically to do that, in a way that delivers most value to the taxpayer, and in a manner that contributes most to a support for a revival of growth in the wider economy, is a pressing policy issue, complicated by the “austerity measures” which are being enacted in many OECD countries. We do not, however, believe that government support where it exists is likely to be withdrawn in short order, and indeed see grounds for believing that further support — particularly within some parts of the Eurozone — may be required in the near future.

Increasingly, we detect willingness by some governments to consider more widely the question of the kind of banking sector society requires and whether state involvement provides a convenient platform for negotiating, shaping and implementing that new deal between the state, its citizens and its banks. As the UK Chancellor of the Exchequer George Osborne said during a speech in June, “a new settlement between our banks and the rest of society … a fairer settlement in which the banks support the people instead of the people bailing out the banks.”Ironically, one major element to emerge from the fi nancial crisis has been a recognition of just how vital sound, effi cient and well-managed banks are to the health of a modern economy, and just how crucial are the many and varied roles which banks play in society.

At the same time as we came fully to appreciate the magnitude of systemic risk posed by a thinly capitalized, over-leveraged and illiquid global fi nancial sector, it was also clear that if banks did not exist, we should have to invent them. Thus, once the populist clamour for redress has subsided somewhat, policy-makers are now striving to ensure that in designing global and regulatory architectures to prevent catastrophic institutional collapses in the future, fi nancial institutions are not so limited that their ability to nurture and support wealth creation is neutered.Thus, once the fi res are put out and we can once again speak of “business as usual,” it is likely that in some countries we shall move towards a new social contract between banks and their host governments, resulting in new models for some fi nancial institutions.

Certainly the magnitude of structural challenge facing many countries in rebalancing and relaunching economies, restructuring public and private fi nances, providing for an ageing population, and dealing with global competition, will require a healthy, innovative and vibrant fi nancial services sector if the right answers are to be found. In thinking about how to fi nd the exit, governments will simultaneously have to consider how they will forge new partnerships and relationships with the fi nancial sector. In many countries, there will also need to be a reappraisal and debate about the role and responsibilities of individual citizens with respect to their personal fi nancial affairs and their collective dealings with fi nancial institutions. Watch this space.

Banking on the right exitHaving stabilized the fi nancial system, governments are now focusing on how and when to reverse their investments into the banking sector. Unfortunately, there is no easy answer, suggests Philip Middleton

“ The extent of government support for fi nancial institutions is staggering. Globally, it is estimated that in excess of US$13t has been committed in one form or another to support the fi nancial sector”

Philip Middleton is a partner with Ernst & Young LLP (UK) and leads the Financial Services Government practice.

“ In thinking about how to fi nd the exit, governments will simultaneously have to consider how they will forge new partnerships and relationships with the fi nancial sector”

35December 2010

Société des Traversiers du Québec (STQ), is facing important challenges in the coming years. Created in 1971, STQ is a state-owned corporation providing a ferry service on eight crossings across the Canadian province of Québec. STQ now operates two marine shipping routes and 11 ferries, including six via partnerships, throughout the year, including winter months. As a state-owned corporation it is owned by the province but operates on a day-to-day basis independently along commercial principles. “The development of the regions and territories served depends on quality ferry transportation services,” says Georges Farrah, STQ’s Chief Executive. “Our mission is therefore to contribute to the mobility of people and goods by ensuring safe, reliable and effi cient marine transportation services favoring Québec’s sustainable development.”STQ provides services to customers with a diverse array of needs: some crossings are extensions of highways in areas where a bridge is not an economical solution; some others transport people and goods to remote regions and islands in St. Lawrence River; and some others are called to operate in northern waters and should conform to ice standards established by Transport Canada. The shortest crossing is just 1km long, while the longest is in excess of 60 km. The majority of services are delivered by STQ’s personnel, who total more than 500, and whose jobs include navigation and on-going ship maintenance. Most crossings offer a service carrying trucks, automobiles and pedestrians and therefore provide an essential economic link.Farrah identifi es a number of issues that, going forward, his organization is prioritizing. “As a public corporation, it is important to develop a strategic plan and, at the same time, have a long-term capital investment plan,” he said. “We must also understand our customers’ needs through customer satisfaction surveys and so on. For example, our expected customer traffi c rates for 2010–25 are based on the demographic and development forecasts for the regions serviced.”Indeed, STQ is very much focused on adapting to the needs of its clients and uses sophisticated indicators to measure performance. One indicator is user satisfaction, with a target rate of 85%. “We have created an advisory committee for each route to be closer to users, understand their needs and develop a positive market image,” explains Farrah. “As part of this program, we are introducing an annual customer satisfaction survey and an ad hoc focus group. We are also developing an online survey and other internet-based techniques to provide a constant, interactive dialogue with our customers.”

STQ has an independent Board whose members are not public servants or elected offi cials. However, STQ does receive extensive public subsidy (about 75% of its revenue), and the Ministry of Transport exercises a strong control over the organization’s strategy. For example, STQ must adhere to the budget framework laid out by the Government, and must also increase its level of internal fi nancing. Certainly, challenges abound going forward, not least as the Government has increased STQ’s responsibilities, a key component of which is the requirement to upgrade all of its equipment and review its service offering.

Fleet renewal represents a major challenge considering that the ferries do more than 107,000 crossings per year and that the oldest ship has been in operation since 1954. When it is time to design the renewal program, one needs to carefully evaluate future needs and estimate future demand, both from a demographic perspective and exact composition of the traffi c.

With an average fl eet age of 36 years, STQ is committed to renewing the fl eet by 2025, spending CA$585m over the next 15 years. Procurement of new ferries needs to fi t into the corporate plan and align with demand volume and composition forecasts. As a result of this analysis, STQ has opted for a cascade approach where some older ferries are to be replaced, and some existing ones will be assigned to different crossings. Procurement process planning is progressing swiftly with design contracts with naval architects nearing completion, as well as the economic business case to be approved by Cabinet. “In the short term, we are committed to the construction of three new ships at a total cost of CA$400m” continues Farrah. “STQ’s strength in operating several routes and owning a fl eet of several ships allows us to maintain service levels by transferring ships from one route to another, as well as add back-up ships in peak periods.“For large-scale projects such as building new ships, it is essential to have a project offi ce to coordinate and supervise. It is also important to integrate sustainable development and environmental concerns into the approach. With its purchasing power, STQ can also obtain good prices for essentials such as fuel.”Over the long term, an important dimension of planning STQ’s operations is to defi ne the proportion of operational costs that are covered by users’ fares. This dimension takes a particular importance with current fi scal climate in most countries, and challenges governments to balance the books and continue offering the public service while charging a reasonable and fair price for it. Strategic thinking around auto-fi nancing targets has become possible thanks to its detailed long-term model that allowed STQ to test various scenarios and see the impact on its operations.Looking ahead, Farrah and his team are focusing on further developing and maintaining good relationships with its shareholders and customers — an ambition which will be underpinned by delivering a good level of service. “It is essential to balance the needs and interests of our customers and our shareholder, the Government,“ he says. “I am confi dent that our organization will meet these challenges. STQ is a major player in Québec’s shipping industry and is integral to economic growth and the region’s tourism industry. STQ is proud to play this role and will continue to move forward to help improve the marine transportation system and strengthen the sustainable development of Québec.”

“ It is essential to balance the needs and interests of our customers and our shareholder, the government”

“ For large-scale projects such as building new ships, it is essential to have a project offi ce to coordinate and supervise”

Shipshape for the future

Daniel Roth is a managing director with Ernst & Young Orenda Corporate Finance Inc. Based in Québec, he leads our Infrastructure Advisory practice.

Government and enterprise

“Government and enterprise” is a regular feature examining what government owns, what it co-delivers in partnership with the private sector, and where it regulates provision from the market. Here, Daniel Roth examines the role and future plans of Québec’s public ferry services.

37December 2010

Toward transparencyResults of a comparative study of governmental accounting in Europe

In the aftermath of the global economic crisis, concerns about accountability, transparency and sustainability have surged back to the top of the international political agenda.The study, toward transparency: a comparative study of governmental accounting in Europe, examines how the debate around accrual accounting is

progressing in 19 European jurisdictions and, in particular, whether IPSAS (International Public Sector Accounting Standards) has proven to be a successful tool for simplifying adoption, and whether governments have made serious efforts to reform their public sector accounting systems.The results suggest that over half of the entities surveyed at the local and national level converted to accrual accounting and for several others, the question seems more “when” than “if.” However, the study also reveals that many jurisdictions for the moment prefer to use local business rules to IPSAS.The study clearly shows that, from a European perspective, the debate about whether to move from cash to accrual accounting is over. However, a single accrual method is not yet being adopted and IPSAS remains currently more of an aspiration than a feasible destination. Thomas Mueller-Marqués Berger, Global Public Accounting Leader at Ernst & Young, summarizes, “Given the diffi culty involved in making any reform, pragmatists may fi nd it tempting to adopt familiar local business rules instead of IPSAS. However, this would be a mistake. IPSAS-aligned reforms will add long-term value to governments. Creating a common set of measures will make it much easier for local and regional governments to benchmark their performance against each other, as it could be observed for international organizations like the European Commission or the United Nations. It therefore will provide greater accountability and transparency for governments.”

Obama’s WarsBob Woodward

Bob Woodward has come a long way since the 1970s when, as a junior staffer on The Washington Post, he teamed up with fellow reporter Carl Bernstein on the paper’s Pulitzer Prize-winning coverage of the Watergate scandal. Now an associate editor of the Post, he is a senior member of the Washington establishment, author of 16 bestsellers and

renowned chronicler of American politics — with seemingly unlimited access to the corridors of power. His latest offering, Obama’s Wars, focuses not on the domestic battles of President Obama’s fi rst two years in the White House but on America’s continuing military involvement in Afghanistan — and the internal disputes it prompted between a myriad of military, intelligence and White House offi cials up to, and including, the President himself.Much like Woodward’s previous four books on the foreign policy of George W. Bush, this a weighty tome. Charting the behind-the-scenes internal disputes which in this case ultimately produced a modifi ed version of the “surge” strategy that the Bush administration used in Iraq, Woodward depicts an administration deeply torn over what direction to take.That the President’s men and women were split on Afghanistan comes as no surprise. In fact, with no easy options on the table, the revelation that vigorous debate occurred should actually come as a relief — one can hope that the fi nal policy has come through microscopic internal challenge before being executed.But this is not vintage Woodward. While going into lengthy, ponderous detail, the lack of headline revelations comes as something of a disappointment. When combined with Woodward’s lack of literary panache, this effort — while no doubt destined for the bestseller charts — is something of a letdown. Perhaps it’s time for Woodward to step back from foreign affairs and next time concentrate on US domestic policy.Reviewed by Matt Mercer, Ernst & Young LLP (UK)

How an economy grows and why it crashesPeter and Andrew Schiff“If NASA … (had) the same level of forecasting skill as our top economists the Galileo missions … would have missed Saturn ... turned downwards and bored through the Earth’s crust and exploded deep in the magma.”This is an excellent and amusing explanation of why economics is more simple than you may think. The book is well written, easy to absorb and uses a great story to explain simply how

economies can generate wealth for their citizens. The authors build upon simple concepts of consumption and saving. Each chapter provides a key message as Peter and Andrew Schiff slowly build up a complete picture of how a modern economy works. They entertainingly explain currency and trade theory, and then explain how and why the credit crunch occurred — and why we should be looking to lay the blame at the feet of politicians: all with excellent cartoons.I normally ignore the foreword but the authors provide a lively but also nicely brief review of Keynesian and Austrian economic philosophies: “With Keynesian in fi rm control of economic departments, fi nancial ministries and banks, it’s as if we have entrusted astrologers rather than astronomers to calculate orbital velocities of celestial bodies.” You’ve got to laugh or you’d cry. The book is actually an improved update of the 1979 classic “How an economy grows and why it crashes” written by the authors’ father. The key reason for reading this is the powerful counter argument to received wisdom around the role of the state in improving economic performance. This philosophical position is moving to the mainstream as skepticism grows around the ability of tax payers to fund all those government initiatives.Reviewed by Simon Rhodes, Ernst & Young LLP (UK)

Coming soon: Future citiesAround the world, cities are faced with an increasingly complex array of challenges. With city migration increasing, and spending cuts limiting budgets, civic leaders are tasked with balancing economic and infrastructure investment with sustainable development. Ernst & Young’s global Government & Public Sector team have embarked on a year-long project to uncover the biggest challenges facing urban communities around the globe. As part of this program, Ernst & Young has interviewed and surveyed more than 60 mayors and their deputies in countries located in every region of the world. We are investigating what drives city leaders; how they see their city developing; and how they are shaping the cities to be fi t for the future.Valuable insights are already emerging from our unique study. City leaders are more prepared to engage citizens and businesses after their vision is launched, than beforehand in shaping it. There is a 58% increase in engagement with citizens and a 51% increase in engagement with businesses, to measure their ongoing affi nity with the mayor’s vision than engagement with them before it was launched. This suggests that, once a vision is launched, it is vital to keep these critically important stakeholder groups on board.

And more than 80% of cities so far surveyed have a sustainable development policy; the most popular activities within strategies include emissions reductions and building new “greener” transport systems. Conversely, less than half of those surveyed were offering tax credits/incentives to green schemes.The next issue of Citizen Today will be entirely devoted to analyzing the results. The magazine will include exclusive interviews with city leaders, insightful commentary from Ernst & Young’s city specialists from around the world, and detailed analysis of the city data.

We look at the latest Ernst & Young thought leadership and the best of recent non-fi ction books available

around the world

Hot off the press

39December 2010

Spotlight on Russia

Russian economic growth has been driven by the export of natural resources. In 2009, Russia was the world’s largest exporter of natural gas, the second largest exporter of oil, and the third largest exporter of steel and primary aluminium.

Russia, however, is still in transition from having a state-planned economy to a market-oriented system. The restructuring of the economy and development of competitive enterprises producing high-value added product are key goals in the national strategy.

Currently, the public sector is still highly involved in the economy. Although most industries were privatized during the 20 years after the dissolution of the Soviet Union, the majority of large companies in key sectors of the economy are still either fully owned by government or have a signifi cant share of state participation. Infrastructure development is also headed by the Government and practically any large-scale project is initiated and fi nanced by the state.

The current macroeconomic situation can be characterized as ‘gradual recovery’. The negative trend of the main macroeconomic indicators for the fi rst half of 2009 changed to signs of recovery of certain sectors at the fi rst three quarters of 2010, which can be considered as a sign that the economic recession has ended.

The third quarter of 2010 GDP showed an increase of 3.9% in comparison with the same period in 2009. The Ministry of Economic

Development of Russia forecasts GDP growth at the level of 3.0%–3.5% in 2010, at 3.4% in 2011 and at 4.2% in 2012.

In the medium term, growth should be supported by government investments during construction projects leading up to parliamentary and presidential elections and the upcoming Sochi Winter Olympics. The Government has also launched a large privatization program to regain the resources spent during the bailout of over 5,000 businesses during the 2008 fi nancial crisis.

The Russian Government is highly interested in broader involvement of the private sector in infrastructure development or supporting innovation. These intentions are supported by increasing focus on PPP projects, co-fi nancing of large-scale and strategic projects and creation of innovation infrastructure (including RusNano corporation, Russian Venture Fund, launch of Technopolis Skolkovo project and other initiatives).

Ernst & Young provides deep support to the Government in these initiatives. Our team helped to launch and structure the fi rst PPP projects and assisted in setting up the Skolkovo project. We also act as key organizers and sponsors for the Foreign Investment Advisory Counsel (FIAC) which facilitates the communication between Russian top government offi cials and international investors.

Global Government & Public Sector Center

Area contacts

Alessandro CenderelloGPS MarketsRome, Italy

+39 066 7535 531alessandro.cenderello@it.ey.com

Mildred TanArea Leader — Far EastSingapore

+65 6309 8200mildred.tan@sg.ey.com

Alessandro CenderelloGPS MarketsRome, Italy

+39 066 7535 531alessandro.cenderello@it.ey.com

Citizen Today team

Philippe Peuch-LestradeGPS LeaderParis la Défense, France

+33 1 46 93 72 62philippe.peuch-lestrade@fr.ey.com

Uschi SchreiberArea Leader — OceaniaSydney, Australia

+61 2 8295 6706uschi.schreiber@au.ey.com

Val LyonsArea Leader — AmericasWashington DC, USA

+1 703 747 0466val.lyons@ey.com

Craig BakerManaging Editor

+44 (0)20 7951 2626cbaker@uk.ey.com

Matt MercerChief Correspondent

+44 (0)20 7951 3772mmercer@uk.ey.com

Chris StaerckStrategic Analyst

Nobukazu KatoArea Leader — JapanTokyo, Japan

+81 3 3503 1137kato-nbkz@shinnihon.or.jp

Marc E. AndersenAmerica Markets LeaderWashington DC, USA

+1 703 747 0825marc.andersen@ey.com

Gemma WilliamsDevelopment Director

+44 (0)20 7951 0694gwilliams3@uk.ey.com

Henri Yan/Sarah PenderGraphic Designers

Contacting our team

About Ernst & Young’s Global Government & Public Sector Center

Around the world, governments and not-for-profi t organizations are continually seeking innovative answers to complex challenges. They are striving to provide better services at lower costs and to ensure sustainable economic development, a safe environment, more transparency and increased accountability. Ernst & Young combines private sector leading practice with an understanding of the public sector’s diverse needs, focusing on building your capability to deliver improved public services. Drawing on many years of experience, we work with you to help strengthen your organization, deliver value for money and achieve lasting improvement. Ernst & Young’s Global Government & Public Sector Center brings together seamless teams of highly skilled professionals from our assurance, tax, transaction and advisory services. We are inspired by a deep commitment to working with you to help you meet your goals, achieve your potential and enhance public value.

It’s how Ernst & Young makes a difference.

83 regions grouped into 8 federal districts: Central, Southern, North-Western, Far Eastern, Siberian, Ural, Volga, North Caucasian

Chief of State: President Dmitry Medvedev (since 2 March 2008)

Chairman of the Government: Premier Vladimir Putin (since 8 May 2008)

Parliament: consists of the Upper Chamber (the Federation Council) and the Lower Chamber (State Duma)

Elections: From 2012, President is elected by nationwide vote for a six-year term (eligible for a second term). Premier is appointed by the President upon consent of State Duma

Olga Arkhangelskaya is a partner with Ernst & Young Valuation and Advisory Services LLC and sector leader for Real Estate, Hospitality, Construction, Transportation, Infrastructure and Public Sector in Russia and CIS.

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