Outsourcing vs decentralisation: A comparative analysis in Central and Eastern Europe

Outsourcing and decentralisation are two of the major practices associated with New Public Management. While applied differently, similar objectives are pursued in both cases, including reducing the size of the public sector in order to generate public savings, creating a competitive behaviour at the local level with a customer orientation approach, increasing the efficiency of the public sector or reducing red tape. On top of all, both practices imply that a one-size does not fit all. There are continuous debates in some parts of Central and Eastern Europe on whether outsourcing and/or decentralisation could be considered viable solutions for ensuring a smooth transfer of responsibility for delivering certain public services, from the central level of administration to sub-national institutions or non-governmental entities without, however, challenging the ultimate authority of the central government. These discussions are particularly sensitive in those unitary states that are facing strong demands from the sub-national level for more devolved power, authority or responsibilities. Scholars have frequently analysed outsourcing and decentralisation either separately or together with other practices associated with New Public Management. Consequently, there is a limited amount of comparative research in relation with the two. The research focus in this paper is twofold. In the first part of the research we thoroughly analyse the concepts of outsourcing and decentralisation. Building on this, in the second part of the paper we compare the two practices against each other focusing on their economic and financial impact, their qualitative impact and their political impact. The research aims to complement previous studies which have assessed these two practices either individually or against different criteria. After an in-depth assessment of both practices, we propose to answer three questions related to the possible effects of outsourcing and decentralisation on the public budget, on the quality of the public service and on the political dimension. The results of the research suggest that outsourcing can generate a reduction of public spending and a quality increase in the public sector only when the state follows transparent and competitive public procurement procedures. Decentralisation on the other hand can generate public savings in the long term without, however, guaranteeing an increase of quality in the public sector delivery. Finally, results suggest that especially in the unitary states neither decentralisation nor outsourcing can significantly lower the demands for more autonomy transferred from the central level. Consequently, if planned thoroughly and implemented transparently, both processes could be viable solutions in Central and Eastern Europe.