Reform the State? How?

Last week, the 25th constitutional government was sworn in. It is already clear that Luis Montenegro, with the reinforced majority of the AD, will try to ensure the approval of the main laws (State Budgets and laws with the greatest structural impact on the country), both to his left and to his right. In the absence of a formal coalition or agreement on parliamentary influence, this will be the only and best possibility for governance. Everything indicates that, with José Luís Carneiro as the future leader of the PS, this government will enjoy a state of grace from the socialist opposition for at least two years. The Chega opposition will certainly be more erratic and at the mercy of circumstances. While it is true that the PS should not give blank cheques to the AD, it is also true that it should not be a source of political instability.

In an open letter that I addressed here to Pedro Nuno Santos and Luís Montenegro before the 2024 elections, I argued that the loser should provide the winner with minimum conditions for governance. Only then can democracy work. There is a minimum amount of time to know whether the negotiations and agreements that the AD has made with the different corporations in the public administration and that it will make (I note that a former firefighter director is a new Secretary of State) and that will have repercussions in 2025, 2026 and 2027 are compatible with the sustainability of public finances with a product growing less than the government's forecasts.

From the point of view of the government's structure, one of the main new developments is the creation of a new position, that of Deputy Minister for State Reform. Gonçalo Matias will have two secretariats of State, one for digitalisation and the other for simplification. This is not the first, second or fifth time that a constitutional government has had a portfolio for State reform or administrative modernisation. There was already a major study leading to an organisational reform of the State in 2006 during José Sócrates' first government – ​​PRACE – which mobilised a lot of resources and resulted in a final global report and sectoral reports, and changed the structure of all ministries, reducing structures and changing the macrostructure of support for governance, which now includes new bodies – the planning and strategy offices (GPEARI) – alongside the general inspectorates and the then-created Financial Controllers. The GPEARI were effectively created and in some cases are maintained successfully, while the financial controllers were precarious entities that did not effectively perform their functions (if they had been, we could perhaps have avoided bankruptcy).

PRACE was followed by PREMAC under Pedro Passos Coelho in 2011, which, with the troika among us, followed the path of reducing structures, namely by abolishing financial controllers and civil governments and governors. Both programs reduced structures, as can be seen here in the DGAEP report . However, their analysis is limited precisely to the impact on the number of structures. In terms of processes, the main advances were in successive SIMPLEX programs. A good starting point for this government would be to begin by analyzing the impact of these reforms on public spending, human resources and the quality of services provided to citizens and companies.

It is therefore important to question what the main objectives of the now promised reform are, especially since the AD's electoral program sets out many objectives, ranging from simplification and debureaucratization to a “deep and critical analysis of all public administration structures”.

To simplify, I will simply start by demystifying a fallacious and disruptive objective in relation to a hypothetical reform of the State, and then clarify small reforms that make sense and that we should invest in.

In some sectors, there is a narrative that a profound organizational reform of the State, with reorganizations and mergers of services, would bring efficiency gains, lead to significant savings and a reduction in public spending, which in turn would allow a reduction in taxes. This view of the reform is both simplistic and fallacious. It is based on a profound lack of understanding of the structure of public spending by the central government, which is, to a very significant extent, not in the services provided by the central government (education, health, justice, security, etc.), but rather channeled outside the State, namely in social benefits to families (particularly pensions), in support for companies, in the payment of interest on public debt and in transfers to regional and local governments. It is clear that an institutional change in the structures of the government will not significantly affect public spending. It is worth remembering that social benefits alone account for 40% of public spending and that there are only two variables that determine the evolution of public spending: pensions and personnel expenses. Not only would this eventual organizational reform not have the desired financial impact, it would also cause further disruption of services, with a corresponding loss of motivation among many workers due to the organizational instability it would cause. It is good to learn from past experiences, such as the extinction of SEF and its replacement by AIMA, etc.

The perspective that seems correct to me is not to think about major organizational reforms, but rather to tackle certain areas of governance in a transversal manner, with a view to achieving efficiency gains that effectively improve the quality of services to citizens and companies, reducing bureaucracy, but without the greater speed in processes meaning deregulation in areas where the market fails, particularly in the environmental field. Certainly also digitalizing, in areas such as justice, but with the necessary revisions of the codes of criminal procedure and administrative procedure, to allow greater speed in processes and reduce delaying tactics that perpetuate processes.

Major reforms should be implemented at the micro level of the functioning of judicial processes or in other crucial areas such as social security or health. The case that recently came to light of a 33-year-old surgeon who billed 400,000 euros in ten Saturdays at the Hospital de Santa Maria (HSM) makes us wonder whether we should once again have a financial controller in the Ministry of Health, whether the internal control mechanisms for budget execution in large hospitals such as HSM work, whether the rules and procedures used in the SIGIC constitute a correct incentive system and whether the General Health Inspectorate has the human and technological resources adapted to its mission. As in all professions, in health there are ethical and unethical professionals. An unethical professional who is better paid for additional surgeries outside of his normal working hours will obviously tend to reduce his productivity during normal working hours, in order to maximize surgeries on weekends. If, on top of that, he is the one who codes his medical act, the value of which obviously varies depending on the act, and if, to top it all off, there is no type of monitoring of his activity, the perfect storm is created for wasting resources in the NHS.

We do not need a reform of the State that creates organizational instability in public administration. What we need is reforms of the micro-management of the State, simplifying, digitalizing and reducing bureaucracy so that existing institutions can better perform their mission of serving citizens and businesses.