Vive la révolution

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Rebuilding the global economy Looking beyond crisis management Reshaping government for the future Life at the center Sir Gus O’Donnell on leading the British civil service Home pages Taking stock of housing December 2009

Transcript of Vive la révolution

Page 1: Vive la révolution

Rebuilding the global economyLooking beyond crisis management

Reshaping government

for the futureLife at the centerSir Gus O’Donnell on leading the British civil service

Home pagesTaking stock of housing

December 2009

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December 2009

A warm welcome back to Citizen today, Ernst & Young’s magazine for our government and public sector clients around the world.The state of the economy continues to dominate debate. While some countries have pulled out of recession, job losses abound. And although governments had little option but to spend heavily, the resulting debt levels mean that policy-makers still face a difficult task.The fiscal challenge, matched with continued structural pressures such as rising citizen expectations and aging populations, demands systemic changes. Much depends on our political leaders to drive efficiencies and reduce spending while protecting core public services.In this, our third issue, we look at many of these themes. With more citizens turning to the state for social security support, we examine how different countries are responding. We have an exclusive interview with the UK’s most-senior civil servant, Sir Gus O’Donnell, about the British government’s response to the economic crisis and his attempts to shape public services that respond to citizens’ needs. And we analyze how countries are dealing with the challenge of rising unemployment.We talk to housing leaders in Canada and New Zealand about housing provision and what can be done to improve the lives of badly housed people. We consider how the French government is implementing sustainable reforms to the way it delivers public services, including the view of the Director-General for State Mordernization. We look at how government and business in the US are working in partnership to address social and economic challenges. And in our regular “government and enterprise” feature, we look at the fast-changing postal sector, with the help of Bruno Chaintron from La Poste.Please continue to send us feedback about the magazine. We are eager to hear your suggestions and offers to contribute your own experiences and insights. Please contact us at [email protected].

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ContentsWelcomeAbout Ernst & YoungErnst & Young is a global leader in assurance, tax, transaction and advisory services. Worldwide, our 144,000 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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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.

www.ey.comCraig BakerManaging Editor of Citizen today and leader of Government and Public Sector Advisory Services

Philippe Peuch-LestradeGlobal Government and Public Sector Leader

04Getting labor workingHow different countries are responding to rising unemployment 23

Guiding the global recoveryDelivering a new approach to governance

26Rebuilding for the futureMoving from crisis management to strategic planning

29Vive la RévolutionModernizing the state in France to deliver lasting change

32Delivering a better way of lifeGovernment and business working together to address social and economic challenges in the US

36Signed, sealed, delivered?Postal markets respond to EU reform and new competition

38Spotlight on ChinaIntroducing Ernst & Young’s government practice in China

16Building New Zealand’s communitiesHousing leader Lesley McTurk tells Citizen today about affordability and the future of social housing in New Zealand

19Creating strong foundationsCitizen today talks to housing chief Karen Kinsley about affordability, increased demand and the environmental impact

06Worldwide unemployment trendsMapping the wide variation in rates and developments

08Delivering 21st-century governmentSir Gus O’Donnell talks to Citizen today about leading the British civil service through change and global recession

Preparing for the worstHow resilience planners should prepare for future Olympics and World Cups13

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December 2009 05

Almost all European countries have sought to support key industries and have set out plans to invest in infrastructure programs to safeguard jobs. Germany, Holland, France and Italy all have schemes in place where government subsidizes the wages of temporary workers. And the German federal government has expanded programs for older and skilled workers, as well as created jobs by increasing the numbers of job placement officers in employment agencies.In the Far East and Australia, there is a mixed picture. China expects its unemployment rate to hit 4.6% this year, which would be the worst since 1980. In response, its Ministry of Human Resources and Social Security aims to create jobs for nine million new urban labourers, five million workers who have lost their jobs, and one million people who are facing difficulties finding work. “Improving the employment situation is our top priority and everything we do is aimed at achieving the goal,” Yin Chengji, the ministry’s spokesperson, said in a media briefing in October. And although Japan’s jobless rate in September was 5.3% — down from July’s record high of 5.7% — according to official figures from its labor ministry, the number of people unemployed was still far higher than in last year.The Australian job market appears to have bounced back. Although Australian policy-makers have sought to play down the significance, Bureau of Statistics figures show that 40,000 jobs were created in September, mostly full time, and the unemployment rate fell to 5.7%. This was the biggest monthly rise in nearly two years, with an overwhelming switch from part-time to full-time work.The Australian economy has been stimulated by A$20b in government cash handouts to consumers and the central bank’s decision to slash borrowing costs between September 2008 and April 2009 to the lowest level in half a century.

Its central bank is now predicting that economic growth will be driven further by increased government infrastructure spending and demand for minerals from China, the nation’s second-largest export market. In addition, Australia’s single biggest investment project, the Gorgon natural-gas venture in western Australia, is expected to create up to 10,000 jobs when construction starts in early 2010.

Based on their attempts to fight unemployment and facilitate the transition to the economic recovery, governments need to be able to react swiftly to market developments. And yet policy-makers cannot act alone; good policies and strategies need to be supported by excellent implementation. Whether the goal is occupational retraining of citizens, creating new jobs or sustaining private consumption, opening up new resources through partnerships is vital.For example, in April 2000, the UK’s Department for Work and Pensions began to test a program aimed at getting long-term unemployed individuals back to work. The department commissioned independent providers to deliver employment counselling services in 15 areas with high unemployment. “Employment Zones” represented a step change by offering providers financial incentives to get participants back to work quickly — and into sustainable employment. The program was successful, significantly raising the rate at which jobseekers returned to work.

Efficient processes for policy and strategy formulation that involve key stakeholders are also important. One way to achieve this is through the use of financial incentives. For example, Holland’s central government announced earlier this year that €153m would be made available for the Dutch regions to invest in youth employment. There was only one catch: the regions had to publish their proposals before 1 September 2009. This deadline forced the regions to cooperate intensively with their stakeholders to deliver in time and secure the investment funds.What’s also clear is that while governments can select measures from a vast array of options, it is important to use a combination of measures in any stimulus package. By doing so, governments give themselves the ability to adjust measures to what are constantly changing circumstances. Central and local governments also should optimize their limited resources by identifying necessary organizational changes, defining new workflows, developing human capital and implementing IT systems.We continue to live in challenging times. The global economic crisis has left governments and citizens very much on the defensive. But through the provision of vital social security support, governments can provide very practical support to citizens and the economy at large.

The spectre of increased unemployment has cast its shadow over a great many of the world’s economies in the wake of the global financial crisis.From continent to continent, labor markets have felt the full force of the worst economic slowdown since the Great Depression, and more pain is likely to come. An Organisation for Economic Cooperation and Development (OECD) study released in September reported that by the end of 2010, 10 million more jobs are expected to have been lost among its member states. This would bring to 25 million the number of job losses in the 30-member group of industrialized nations since the economic crisis began at the end of 2007.At a time of severe fiscal constraint, governments are thus faced with increasing demands for social security support from their citizens, as well as confronted by the logistical challenge of ensuring that its existing business systems are

capable of dealing with this spike in demand. The map on pages 6 and 7 demonstrates that while different countries have adopted different measures, interventions from the state have been widespread.

Take the US for example. It may be out of recession, but October was the 22nd successive month that unemployment rose, and its economy lost jobs at an average monthly rate of 256,000 in the third quarter of this year, according to

official figures from the US Treasury. The trend, however, was nearly a third of the pace of job losses of two quarters ago.Although his opponents disagree, supporters of President Barack Obama contend that the actions taken by his administration have helped mitigate the severity of the US jobs crisis. The federal government’s US$787b recovery plan has deployed federal tax cuts and incentives to try to create and save jobs, expanded unemployment benefits, and directed spending to social entitlement programs. In addition, federal agencies are using recovery funds to award contracts, grants and loans around the country.In Europe, meanwhile, unemployment has been rising throughout the euro zone, as well as in those countries that still use their national currency, such as the UK. The Baltic countries have been particularly badly affected, as have Ireland and Spain, both of which have suffered from the collapse of their construction industries.

“ Policy-makers cannot act alone; good policies and strategies need to be supported by excellent implementation”

“ At a time of severe fiscal constraint, governments are faced with increasing demands for social security support from their citizens”

About the authorCornelia Gottbehüt is a senior manager in Advisory Services with Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft.

Getting labor working

Rising unemployment has been one of the primary consequences of the global financial crisis. With many more citizens turning to the state for support, Cornelia Gottbehüt examines how different countries around the world are responding to the challenge

Assessing four key service delivery drivers will help to identify areas of focusIncrease value for money and do more for less

Improve reputation and trust

Improve resource allocation and focus on your top priorities

Improve capital and asset management

Source: Ernst & Young, “Rebuilding for the future”, August 2009.

How efficient are you?Consider outsourcing with payment linked to ►creating sustainable jobsSwitch to low cost channels ►Streamline business operations ►Introduce shared services ►

Do all your stakeholders view you positively?

Strengthen governance, transparency, ►accountabilityDemonstrate assessment processes are fair ►and rigorous

How effective are you?Focus on returning people to work — and keeping ►them there

►Support unemployed and recently ►

employed ►

How well are these managed? ►Reuse technology assets ► ►

Ernst & Young service delivery

driversDispose of surplus property

Review all capital programs

Engage with employers

Build partnerships with third parties

As we have seen, the downturn poses a significant challenge to existing employment and social security organizations across the world. Adopting a “business-as-usual” approach will not drive the greater sense of urgency that governments should adopt. What capabilities do these organizations need, and where must they focus their efforts? Ernst & Young believes that there should be four primary areas of focus.

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07December 2009

Canada: 1.5m/8.4%

Although unemployment fell 0.3% in September 2009, this number is still 35% higher than in October 2008. Many economists predict that layoffs in the manufacturing, forestry, construction and auto sectors could push the number of Canadian jobless to more than 9% by the end of 2009.

Mexico: 2.9m/6.4%

Mexico’s unemployment rate jumped more than expected in September as a crippling recession ravaged the country’s key exports. While Mexico’s unemployment rate increased, it is still lower than in many other industrialized countries. Some analysts say that Mexico’s absence of unemployment insurance causes workers to take any available job if they are laid off.

Germany: 3.4m/8.0%

German unemployment fell to 8.0% in September 2009, confounding forecasts of a slight increase. Government subsidies that allow firms to cut working hours have so far prevented a flood of jobless claims, but experts warn that claims could rise significantly in Q4 2009 and Q1 2010.

Netherlands: 0.4m/5.0%

The Dutch government has started a program of part-time unemployment benefit payments. Employers can let their skilled workers work up to 50% fewer hours rather than being laid off, with the time they are not working made up with a benefit payment.

Spain: 4.1m/17.9%

The OECD predicts the number of Spanish jobless will reach 20% of the workforce during 2010. The social consequences are already being felt. Protests have erupted across Spain as citizens struggle to deal with the economic crisis. For some commentators, the downturn has been aggravated by Spain’s labor regulations.

France: 2.6m/10.3%

Analysts have warned that even though the economy seems to be on the mend, rising unemployment is a serious threat to any recovery as it could sap consumer demand, the key driver of growth.

Australia: 0.7m/5.7%

Australia’s unemployment rate fell to 5.7% with 40,000 jobs created in September 2009, defying international trends and stunning financial markets.

South Africa: 4.1m/23.6%

South Africa’s unemployment problem is rooted in its apartheid history. Although President Jacob Zuma has pledged to create 500,000 jobs in 2009 and 4m by 2014, with South Africa now in recession after years of steady growth, economists say the government will have a hard enough time saving jobs, never mind creating them.

United States: 15.1m/9.8%

September 2009 was the 21st consecutive month of shrinkage for the US workforce. The official figures were far worse than economists had forecast, and together with a drop in factory orders, sent stock markets lower and sparked renewed talk of the possibility of a “double dip” recession.

Brazil: 1.8m/7.7%

At the start of the crisis, President Luiz Inácio Lula da Silva increased and expanded access to social protection, implementing a series of anti-cyclical measures designed to safeguard employment, assist the unemployed and protect internal consumption. The Brazilian economy added 252,617 jobs in September, on top of 242,126 in August.

Japan: 3.6m/5.3%

Many Japanese economists believe it is just a matter of time before the unemployment rate tops the current postwar record high of 5.5%. In June, the Cabinet Office annual report put the number of excess workers at Japanese companies during the first three months of 2009 at 6.07m, adding that the capability of these workers to remain employed under severe business conditions is reaching its limits.

China: 35.0m/4.2%

Unemployment in China is hard to accurately measure as the number of jobless migrant workers is not recorded. The Ministry of Human Resources and Social Security aims to create jobs for 9m new urban laborers, 5m laid-off workers and 1m people who are facing difficulties finding work.

India: 40.0m/9.1%

In India unemployment is estimated at 9.1%, but this number is thought to largely reflect the “organized” (official) sector of the economy, which makes up just 10% of the country’s workforce.

United Kingdom: 2.5m/7.8%

The UK’s Office for National Statistics reported that in September UK unemployment had risen to its highest level in 14 years. Alarmingly, youth unemployment rose to a record high of 19.8%, adding to fears of a new “lost generation” of young people.

Italy: 1.8m/7.4%

While the Italian unemployment rate is less than some expected, the number of people giving up the search for work has increased. Hours worked in Italy have fallen 3.8% since Q2 2008, compared with a fall of just 1.7% in France, and the number of workers temporarily sent home on reduced pay under the “cassa integrazione” scheme has gone up around six-fold since June 2008. Experts expect this scheme will be used less in coming months and the unemployment rate will rise accordingly.

Worldwide unemployment trends

Source: Data and intelligence has been drawn from national statistics on employment, OECD, IMF, and the World Bank, and economic media.

This map records Q3 2009 unemployment levels in certain countries around the world. It is clear that rates and trends vary dramatically, with comparisons complicated by different recording methods. At one extreme, South Africa (23.6% unemployment) and Spain (17.9%) are fighting hard to control the problem. At the other end of the spectrum, Australia has 5.7% unemployment and falling rolls, and the Netherlands has just 5.0% unemployed. Globally, the International Monetary Fund and the World Bank forecast that unemployment will not peak until Q3 or Q4 2010.

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Delivering 21st-century government

As head of the British civil service, Sir Gus O’Donnell works in partnership with the Prime Minister and leads an organization of

500,000 people working across the UK. Here, he talks to Matt Mercer about his role, what he has learned from around the world and his

attempt to shape a civil service that is responsive to citizens’ needs

December 2009 09

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As the global downturn took hold, Sir Gus was able to draw on his background in economics. Having studied the subject at the University of Warwick and Nuffield College, Oxford, he spent four years as an economics lecturer at the University of Glasgow before he finally joined the UK’s Treasury ministry as an economist.“In some ways you think you spend your whole life preparing for something like this because I have a very Keynesian economics background,” he says. “For us in the UK, we had a big role to play by hosting the G20 Summit in London in April. I remembered my economic history of the response to the Great Depression and all the things that went wrong there — the conflicts and the fact there was a G66 meeting which went on for a month and it accomplished little. The G20 for a day and a half was tough enough!” What was it like? “It was fascinating. Getting the G20 leaders together with the heads of international organizations was crucial, as they all realized that they had a common purpose. We have, I think partly as a result of the summit, had various regions of the world starting to turn around already, particularly in Asia. Personally, for me, it was tremendous because I was able to meet people like President Obama and talk to him. He was incredibly impressive and very, very good at helping to solve problems and moving things on.”With the London 2012 Olympics on the horizon, hosting such a big event was a particularly useful experience for the UK. “As a logistical exercise it was something else,” Sir Gus says. “I think people didn’t realize how big an event G20 is because there are rather more than 20 representatives there! But in terms of outcomes it was a great success and it has led on to Pittsburgh, and now we will have G20 meetings in Canada, Korea and then France. So I think what it has done is cement the G20 process as the key international economic forum, and this is a big achievement and a big change.”

The UK civil service is structured into three organizations. There is the home civil service, which Sir Gus heads, and two other administratively separate civil services. One is for Northern Ireland, the Northern Ireland Civil Service, and the other is the Foreign Service, Her Majesty’s Diplomatic Service. The heads of these services are members of the Permanent Secretaries Management Group, reporting to Sir Gus, who says the system works well. “It’s quite permeable. In the old days you would have seen an embassy or high commission as fundamentally being there to promote our foreign policy, but this has now changed. When I went to India recently, I saw how our high commission operates as a platform for British government. There were people there working on things like commercial issues, inward investment, science, and economics — people from a whole range of departments. So the idea of embassies just focused on foreign policy is

outdated — it’s still essential but it’s very much just one element. And in many countries, the Department for International Development — known as DFID — is also working in new and innovative ways to reduce poverty and playing a more and more important role in how the UK operates overseas.”Earlier in his career Sir Gus had two stints working in Washington, DC. In 1985 he joined the British Embassy to serve in the economics division for four years. In 1989 he became press secretary to Nigel Lawson, the British chancellor of the exchequer in London, before transferring to fulfil the same role for Prime Minister John Major for another four years. Between 1997 and 1998 he returned to Washington to serve as the UK’s executive director to both the International Monetary Fund and the World Bank.

“Having had two spells in Washington I learned a lot,” he says. “It was incredibly personally enriching and is one of the reasons I always say to people here. “If you want to get on, get out.” I was there in the mid-1980s, the Reagan years, and it was fascinating to see the growth in popularity of supply-side economics, but also to see the center of gravity moving somewhat to the west, going to places like San Francisco and San Diego. Seeing the focus westwards, rather than eastwards, was really interesting as it was the early days of the growth of China and India.”Now, as cabinet secretary, he still seeks to pick up as much as he can from regular trips abroad. “It’s very important to learn about best practice from public services around the world. America’s ideas on opening up data were really interesting, for example.“We are doing something similar on www.data.gov.uk which is where we are opening up non-personal data for other citizens to reuse. This is to increase transparency, empower people to help improve public services and stimulate economic growth. In one case, we released data on where cycling accidents occur. Within 48 hours of it going online, cycling user groups had planned alternative routes. So this generated real value to the user — cyclists in this case. The state didn’t have to pay any money — all we did was put the raw data out there and people used it to their best advantage. The idea of finding ways for other people to use the material we can publish, in a world where we may be stretched in terms of resources, is a really good one.” And what about other countries picking up lessons from the UK’s civil service? One key area of interest has been in the UK’s capability reviews, Sir Gus’ flagship reform, which systematically assess the organizational capabilities of individual departments and publish results that can be compared across departments. The five-member review teams for each department typically include two senior civil servants from outside that department, two members from the private sector and one from local government. In response to weaknesses identified in its review, each department must draw up and follow an action plan to ensure that it can meet the challenges to its current and future delivery.

“ Getting the G20 leaders together with the heads of international organizations was crucial as they all realized that they had a common purpose”

“ It’s very important to learn about best practice from public services around the world”

Every Tuesday morning British Prime Minister Gordon Brown and his secretaries of state meet in Number 10 Downing Street for their weekly cabinet meeting.Always sitting to Brown’s immediate right is not a senior minister but Sir Gus O’Donnell, the cabinet secretary and head of the UK home civil service. His placement at these meetings underlines the importance of his role. He and his civil service colleagues support the government of the day in developing and implementing its policies, as well as in delivering the UK’s public services. And yet Sir Gus insists that participating in cabinet is not the best part of his job. “What I like best is seeing the great things that civil servants do in various contexts, helping the most disadvantaged groups and working to improve public services,” he says. “One day it could be seeing people working on one of our best services, such as the car tax system, which is an incredibly efficient online and telephone service. And then another example is when I visited Kabul, in Afghanistan, seeing our civil servants there operating in incredibly difficult circumstances to try to improve lives.”Sir Gus’ large wood-panelled office, deep within the Cabinet Office building in Whitehall and overlooking Horse Guards Parade, is exactly what you’d expect it to be — imposing and humming with the activity that comes with life at the very center of government. But, since taking on the role in August 2005, Sir Gus prefers a down-to-earth approach — no old-fashioned mandarin is he.It was from this base in the Cabinet Office — a short walk down a rabbit warren of corridors from Number 10 — that he has spent much of his time working on the British government’s response to the global economic crisis.

“Trying to sort out our economic policies on what continues to be a really, really unusual global downturn has been challenging,” he admits. “But, again, you see great rewards when organizations like our JobCentre Plus agency are putting more people into jobs than you would ever have expected, given the scale of the fall in GDP.” He is also keen to stress that it’s at times of crisis that the civil service’s values of honesty, impartiality, integrity and objectivity really come to the fore. These values were first put forward by the Northcote-Trevelyan report of 1854, which was the foundation of a modern civil service that aimed to be efficient and non-partisan, recruiting on merit through open and fair competition.“I have made a big push on values,” he says. “And one of the highlights for me is that the House of Commons is shortly going to be voting on legislation that will enshrine these values into law — 150 years on from Northcote-Trevelyan. These things are the bedrock of our civil service.”

Delivering 21st-century government

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Preparing for the worstResilience planners for Olympics and World Cups must not merely hope for the best, says Jay Rebbeck. Prioritizing resources, rigorous training and planned coordinated responses are all crucial elements that help reduce the risk from emergencies

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At 4:30 a.m. on 5 September 1972, five terrorists from the Black September faction of the Palestinian Liberation Organization climbed over a two-meter fence into Munich’s Olympic Games village. After meeting with two insiders with security access, they used stolen keys to enter the Israeli team’s apartments. Two Israelis were killed in the initial struggle and nine were taken hostage. After relocating to a nearby airfield, the crisis ended disastrously later that day when a failed rescue attempt left all the hostages, one German police officer and five terrorists dead.This was without doubt the worst terrorist incident any modern Olympic Games has had to face. It continues to act as a reminder to the host organizers of major international sporting events for the need to contingency plan against terrorist attacks, as well as other potential ‘nightmare’ scenarios that could happen.Forthcoming international sports events include the Vancouver Winter Olympics in February, next summer’s World Cup in South Africa, and the London 2012 Olympics. In 2014 Brazil will stage the World Cup and Russia will host the Winter Olympics, and the Olympics are headed to Rio in 2016. The organizers of all of these events face the same challenge — what resilience preparations should they have in place, and how can they maintain business continuity if a significant emergency or incident threatens the event?

“We’ve had an enormous number of delegations come and talk to me — all wanting to see if we could find ways of benchmarking their performance against other countries,” says Sir Gus. “I’m very pleased that I started the reviews straight away because I think it takes a while to come through, but we’re really seeing the benefits of constantly looking at trying to improve. To me, it underlined the importance of the need to professionalize the civil service and to open it up. The weaknesses we found were in areas like finance, HR, commercial procurement and IT, but we’ve improved dramatically. This has been pushed by the capability reviews, but departments have also responded by bringing in external experts, which has worked really well. In the long term, we want to grow more of our own talent, but right now I don’t think people realize how open we are — about 30% of our senior staff we bring in from outside.”

Looking to the future, Sir Gus predicts that the civil service in the UK will look very different. Already very diverse when compared to the private sector — the proportion of women in the senior civil service has almost doubled over the last decade — this trend is going to accelerate even further. “We are already majority female and we’re on track to be majority female in the whole of the senior civil service by 2020,” he points out. “In the FTSE 100 the number of women directors is 11% but we’re at just over 33% — three times as good.” The civil service will also continue to professionalize, he predicts. “A lot of our big processes will be about putting more services online and making them more accessible. This will inevitably mean we will be somewhat smaller. We will be much more focused on outcomes, much more focused on making sure that we can measure how the public feel about the services we are providing. “So I think 10 years from now there will be a lot that is different in terms of pace and professionalism. There will be a lot more pride and passion in what we do. But what won’t change will be that we will continue to operate on a bedrock of traditional values. So we have to keep the very best of our traditions, but at the same time move towards more pace and more professionalism.”

“ I think 10 years from now there will be a lot that is different in terms of pace and professionalism”

Delivering 21st-century government

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15December 2009

Putting plans into practiceIn preparing for an event, it’s critical to train and test resilience plans is critical. Typically, the highest-priority scenarios are tested through full-scale training events and lower-priority scenarios are tested through “tabletop” simulations. The Athens Olympic Games Security Division held seven major drills before the 2004 Games, including simulations of a chemical attack, a plane hijacking and an epidemic outbreak. South Africa’s training regime has included testing of air and maritime defenses and chemical, biological, radioactive and nuclear simulations in Cape Town, Pretoria, Port Elizabeth and Bloemfontein.The importance of training and testing was highlighted by the Atlanta 1996 Olympic bombing in Centennial Park that killed two and injured 111. The FBI was critical of Atlanta’s resilience response. Systemic failures in the process delayed police responding to a warning call, and they could not clear the park before the bomb exploded. More comprehensive training and testing would have arguably highlighted these system issues.

Reliable intelligence sharing and response coordinationReliable security intelligence needs to be gathered and shared among key departments and agencies before and during the event. The German security operation for the 2006 World Cup was a prime example of effective security intelligence gathering and sharing. The National Information and Cooperation Center in Berlin tracked 6,000 unruly trouble-makers and received thousands of tip-offs by coordinating closely with police, Interpol and the Central Sports Intelligence Unit.Robust health-intelligence gathering is critical to monitor and contain communicable disease outbreaks caused by food poisoning, bioterrorism or emerging epidemics. Sydney’s Olympics organizers spent three years developing an extensive infectious disease surveillance system for the games. Fortunately, there was no outbreak in communicable diseases during the games. However, the comprehensive surveillance system was a success that also created an excellent health legacy. This is a great

example of a resilience investment delivering benefits long after the event, which is a useful lesson for other organizers to learn.When resilience scenarios strike, command and control structures need to be in place to act as the surveillance and decision-making hub that coordinates the response. These are typically secure rooms deep inside government, with pre-determined protocols for which department or agency will take the lead in any given scenario. The importance of locating these command hubs in discrete, resilient locations was highlighted during New York’s emergency response to 9/11. The Emergency Control Center that was meant to be the city’s main command and control headquarters in the event of a terrorist strike was located on the 23rd floor of the World Trade Center.

Facing the futureToday’s resilience landscape is complex. Every event is unique, and risks have to be assessed locally. A second wave of pandemic flu in the northern hemisphere would give the Vancouver Winter Games a major problem. With a UK general election looming, London’s resilience planners will find short shrift if they start pushing the GB£600m resilience envelope. Sochi’s planners in Russia already know they need to massively increase their energy supply for the Winter Games in 2014 — at current levels the event would drain 80% of their total available energy.Spectators want to feel completely safe when they attend an Olympics or World Cup, but citizens don’t want to see spiraling resilience costs that they know they ultimately will pay for. Given limited resources, organizers have to be ruthless in how they choose to mitigate risks. This means prioritizing how resources are focused, putting rigorous training and testing regimes in place and delivering coordinated resilience responses. But even with all this, ultimately sporting organizers never want their resilience plans to see the light of day. They would swap the best plans in the world for one ingredient — good fortune. However, luck has a peculiar habit of favoring those who don’t depend on it.

Assessing the strategic context and risk factorsThe environment in which today’s resilience planners work is more complex than in the 1970s. Every sporting event is unique. The first step in resilience preparation is to comprehensively understand and assess the local risks that could threaten the event.For example, the attacks on the Sri Lankan cricket team in Pakistan in March this year highlighted the increased likelihood of terrorist attacks on sporting targets. Massive sporting events such as World Cups and the Olympics also bring with them the focus of the world’s media spotlight; 4.3 billion viewers tuned into the Beijing Games. High modern attendances also put greater strain on host city infrastructures, stretching utility services, transport systems and emergency services alike. And resilience plans for all these scenarios need to be financed during the worst economic downturn in living memory.

Prioritizing risksAssessing the local risks affecting a sporting event will generate a very long list of potential risk scenarios. However, with limited resources to respond to these scenarios, the risks need to be carefully prioritized. This is typically done on the basis of their relative likelihood versus their relative impact. The UK government uses this approach to prioritize the risks posed to the whole country by accidents, natural events and malicious attacks.It is important that resilience planners of major sporting events use this rational prioritization of risks for two reasons. First, the trade-off between likelihood and impact throws up results that are not always intuitive. Although a nuclear attack would cause far more devastation than a gun attack on a crowded iconic venue, the latter scenario is far more likely. It is therefore a higher priority in terms of resource allocation. Second, this approach forces us to assess likelihood rationally — something that humans are not very good at. This is because the “recency effect” often gets the better of us. We tend to assess scenarios as more likely if they have happened recently and less likely when they haven’t happened for a while. For example,

in the year after 9/11, there was a marked decrease in the numbers of Americans traveling by plane and a corresponding increase in road travel.

Resilience planningOnce high-consequence risk scenarios have been identified, they must be translated into effective plans. This begins with the design of the events themselves. A key security lesson of the 1972 Munich hostage crisis was the need to physically separate athletes from the public. This was taken on board in Sydney 2000 and by London’s 2012 organizers, both of which favor a layered security policy that sees athletes housed in an Olympic village within the Olympic park. Successively more-stringent checkpoints need to be accessed to enter the Olympic village.Crowd safety also needs to be built into the physical design of the venues. The importance of building structurally sound venues was highlighted by the Heysel disaster in 1985, where 39 people died as a result of a collapsed stadium wall. Numerous other football disasters (including Peru in 1964, Hillsborough in Sheffield in the UK in 1989, Ghana in 2001 and Johannesburg in 2001) point to the need to allow fans overspill space (onto the pitch if necessary) to avoid crushing and for stadia to have rapid evacuation protocols in the event of an emergency. This includes having all-seated stadia, wide exits, and gentle slopes running away from the stadium.Resilience plans need to cater for the additional staff, equipment and vehicles needed in and around the venues. This includes extra security staff and police officers, more firefighters, more medics, and increased numbers of police cars, fire engines and ambulances. To pay for all this, resilience budgets have surged. For example, the Athens 2004 Olympics spent just over €1b for their security campaign. A major lesson has been the need to ring-fence an appropriate resilience budget. While London 2012’s planners have so far stuck to their GB£600m budget, Vancouver’s organizers have spent more than five times their initial budget of US$175m, and are now on course to spend US$900m.

About the authorJay Rebbeck is a senior manager with Ernst & Young LLP. He has nine years of experience, the last five as a strategy advisor to the UK’s national and local government.

Preparing for the worst

Page 9: Vive la révolution

Surprisingly, for a nation of such vast open spaces and comparatively small population, New Zealand still suffers from housing challenges familiar to those living in larger, more densely populated countries. From constructing sufficient numbers of affordable homes to tackling rent disparities and the rising unemployment borne out of the global financial crisis, there’s no doubt there is a lot in Lesley McTurk’s in-box to keep her busy in the office. But as the chief executive of Housing New Zealand Corporation (HNZC), McTurk makes it a priority to get out and about, engaging with an eclectic array of partners and customers.“In the broadest sense our stakeholders are very generic,” she says. “They include the New Zealand public, because they pay for the services we provide through their taxes, and because of the work we do right across the country, we have a lot of interest groups that are impacted. We are not just talking about social housing providers; we are also talking about people who provide social services. And they include a lot of the not-for-profit groups who have an involvement with our tenants. So we touch pretty much everyone.”

HNZC is the government’s agency for providing housing services to people in need, as well as its principal advisor on housing. It currently manages a portfolio of around 69,000 houses, currently valued at NZ$14.7b (US$10.7b), including about 1,500 homes for community groups providing residential services. HNZC’s traditional role has been to provide good- quality, affordable rental homes for people on low incomes or with housing needs. But it also works to improve access to affordable homes through programs such as home ownership loans and education for people on low to modest incomes, as well as locally based programs to strengthen communities.“We are not a social welfare agency, we are a housing provider,” McTurk points out. “Within that role, however, the way in which we discharge our obligations as a housing provider involves

referring to and touching many other agencies who we believe might be required to provide the necessary wraparound services when there are challenging situations, or difficult and vulnerable tenants.”Increasingly, McTurk and her colleagues are seeking to involve New Zealanders in the delivery of their services. “This is the basis of the approach we are taking in Tamaki, a suburb of Auckland,” she says. “We are involved there in a very high level of engagement with the community in co-design. They are very much a driver in that development, and not just our own tenants either — the broader community are involved, too.”In New Zealand, it’s not just central and local government that are involved in the provision of social housing, McTurk says. “Local authorities are one player in the market, but there are also others like not-for-profit organizations who are involved as well,” she points out. “We are a provider, but the reason for wanting to have local provision in part is that you end up with far more responsive provision of housing to the local need, a greater understanding of what that local need is, niche providers who might provide for the disability sector and so on. And you end up with a better and more responsive sector.”Prior to taking up her role with HNZC, McTurk was chief executive of Christchurch City Council. Asked for her views on the major changes in New Zealand’s social housing sector over the past decade, she pinpoints affordability, and the resulting increase in those people unable to afford to buy their own home. “We were involved in a significant piece of cross-government research in the last couple of years,” she says. “This demonstrated very clearly that in about 2003 there was a significant and irreversible shift in housing affordability. A variety of factors came together, such as interest rates, immigration trends, and the introduction of new compliance costs. When combined with an increase in land prices, it effectively froze first-home buyers out of the market — a group of people who previously would have expected to be able to own a house, but subsequent to that change in trend, will not be able to.”With fewer people buying their own homes, the number of homeowners in New Zealand is expected to fall to 62% in future years. “There is nothing necessarily wrong with that in itself, because you can compare countries in Europe

which have far lower home ownership rates,” she adds.“As an alternative to home ownership, there needs to be more institutionalized arrangements to give security of tenure for people. I think in New Zealand, home ownership has been a substitute for wealth generation and intergenerational wealth transfer. In lieu of a good savings record, people save in their home — it’s where they put their equity. So it’s important for those people who aren’t homeowners anymore to find other investments that are going to generate wealth for them in their older age. We also need to, and we are looking at, designing different products, if you like, for lease/rental that will meet people’s needs and are more secure than the current private rental market.”

And what about the effect of the economic crisis on New Zealand’s housing sector? The country as a whole has not been immune to the global downturn. Even though the country’s banks are sound, global interdependencies and accumulated domestic imbalances mean that the economy has inevitably been affected by the worldwide financial and economic crisis.McTurk, though, says that the effect on housing has been far from immediate. “It’s interesting how the impact of the recession has taken longer to flow through than might have been anticipated,” she says. “But there is also the fact that it is flowing through in a patchy way. For example, our overall waiting list for houses hasn’t changed across New Zealand, but it has grown in certain areas and obviously declined in others. Once unemployment peaks, then the impact of that takes still longer to flow through the housing market.”Turning to what lies ahead over the next 10 years, McTurk suggests that how the sector evolves depends very much on the decisions taken today. “Housing affordability is a challenge that we’ve got to think about quite robustly in New Zealand,” she says.

December 2009 17

Home pages: analyzing housing

“ Housing affordability is a challenge that we’ve got to think about quite robustly in New Zealand”

“ It’s interesting how the impact of the recession has taken longer to flow through than might have been anticipated”

Building New Zealand’s

communities

Providing people with access to good-quality, affordable homes is what drives Lesley McTurk, chief executive of New Zealand’s principal housing agency. Here, she tells Stuart Mutch and Alan Judge about

her role, tackling affordability and the future of social housing

Page 10: Vive la révolution

19December 2009

For the last 60 years, the Canada Mortgage and Housing Corporation (CMHC) has been working to help Canadians access a wide choice of safe, quality, affordable homes. Established as a government-owned corporation in 1946 to address Canada’s post-war housing shortage, the agency is now a major national institution providing mortgage loan insurance, mortgage-backed securities, housing policy and programs, and housing research.

Karen Kinsley, its president and chief executive since 2003, explains that CMHC operates in conjunction with Canada’s different levels of government. “We actually have a shared role, certainly in the provision of affordable housing, or what we call ‘social housing’,” she says. “Here, the federal government provides funding and this is generally shared equally with our 10 provinces and three territories. The federal government sets principles and priorities for the funding, and then the provinces and territories have the responsibility to design the specific initiatives to meet the needs of their citizens.”Canada is the world’s second largest country. From east to west, it encompasses six time zones and with territory facing the Atlantic, Pacific and Arctic Oceans, it has the longest coastline of any country. Kinsley, however, is keen to stress that its geography does not hinder the delivery of CMHC’s services. “Internally, we are a big user of technology and we use video conferencing for those of us who are in our regional operations,” she says. “We also use web forums to keep in touch with staff across the Corporation. And I make a point to personally visit all of our regional centers annually to ensure that everyone is clear about our priorities and to thank our staff for their work.”

Housing in New ZealandIn 2006, 67% of homes in New Zealand were owner-occupied, down ►from 71% in 1996. Projections suggest that owner-occupied housing will decline to 62% by 2016.New Zealand’s biggest city, Auckland, has lower home ownership, ►projected to drop to 58% by 2016. Home ownership is lower for Maori (43%) and Pacific peoples (34%).House prices increased through November 2007. More recently, house ►prices and interest rates have declined, and houses have become more

affordable. The New Zealand Treasury predicts house prices will fall further in 2010, reflecting lower demand as a result of tighter lending criteria, investor uncertainty, low net migration and a weakening labor market.In February 2009, Housing New Zealand received NZ$124.5m of ►additional funding from the government’s fiscal stimulus package to spend on state housing over an 18-month period to July 2010. The money is being used to build new state homes and improve existing ones across the country by making them warmer, drier and healthier.

Source: Housing New Zealand, Statement of Intent 2009–10

“I think a lot of it is also about how we face up to the lessons of the recession — are we still going to be subject to the borrow and hope mentality? Or are we going to learn some lessons from this recession and change the way we structure our financial affairs as individuals? It’s about whether or not New Zealanders can actually afford the level of amenity in housing that they have been used to. Can we afford it as a country?”

McTurk believes that there needs to be a scaling back of aspiration levels. “What social housing looks like in New Zealand is relative to what the expectations are of the average New Zealander,”

she says. “For example, we might have someone who can afford a certain two-bedroom flat in the private sector but they find that that’s not suitable for their circumstances, or they decide they want to apply for a state house because it’s going to be better. But the reality is that’s all they can afford with their income. That means state houses are available for the most vulnerable in our communities.”McTurk believes that social housing trends in the next decade will be driven by the health of the labor market, as well as by demographic changes such as immigration and refugee and migrant intakes. “The thing that we need to do in New Zealand — and this comes back to that housing affordability issue — is that anything that will stimulate housing supply is a good thing.“At the moment we need about 20,000 houses a year to be built to maintain supply at the right level, and depending on immigration it could be more or less. We know that it’s going to push rents up, and that pushes people into the social housing sector so supply is key. We need to keep

supply levels healthy and balanced and not hit by wild fluctuations. It went down to 12,000 as a result of the recession. Building consents are up 23% so that’s a good sign, but that’s up from a low base so it’s still going to take a while.”Innovation, too, will be crucial. “We need to see the development of other products and services to create more choice for tenure, with institutional investors coming into the long-term rental market. We really need to start thinking about building complexes and density. There is a huge opportunity there for those institutional investors, superannuation funds and so on. There is a whole lot of interest in this, and that’s really exciting.”

About the authorsStuart Mutch is an Assurance partner and Alan Judge is Head of Government Services at Ernst & Young New Zealand.

“ At the moment we need about 20,000 houses a year to be built to maintain supply at the right level”

“ The private sector could possibly do more to help with addressing the need for affordable housing in our country”

Building New Zealand’s communities

Creating strong foundationsDelivering quality and affordable housing in a country as large

and varied as Canada is no easy feat. Here, Karen Kinsley, chief executive of Canada’s national housing agency, tells

Julie Mills about addressing the needs of 33 million people spread across 10 million square kilometers

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Looking at the housing market across Canada as a whole, issues and challenges vary from region to region — one size does certainly not fit all. “Clearly, different parts of the country will have different approaches,” Kinsley says. “Some of the strategic issues, however, such as the affordability of housing are common challenges. But how one deals with affordability issues is very much driven by local circumstances.”Kinsley, who joined the organization in 1987 and was previously vice-president and treasurer of two real estate development companies, cites the level and pace of innovation in Canada’s housing system as a major area of change over the last 10 years. “The pace of innovation is now much quicker than it would have been a decade previously,” she says. “I think there is now a much more competitive marketplace. Consumers are benefiting from more choice and a high-quality product.” She also points to the increased amount of information about how housing markets are functioning. “Analysis about prices, affordability, demographics and demand is becoming much deeper and much more widely used.”She goes on to say that housing as a sector is now increasingly recognized as an important generator of economic activity. “The impact of housing on the wellbeing of society more generally has also come to the fore. The benefits of good housing — and obviously the consequences of not having a strong housing system — are becoming better understood, not just by policy-makers in government, but citizens more generally. Certainly in the last economic downturn, the impact of not getting it right had become regrettably well known to many.”

However, Canada appears to have coped far better with this downturn than many other countries. For example, unlike their US neighbors, Canadians have not been as exposed to the problems associated with sub-prime mortgage lending — where loans are made to borrowers who did not qualify for loans from mainstream lenders.

“We never insured sub-prime loans,” explains Kinsley. “So the amount of sub-prime mortgage in this country is very, small — probably less than 5%. So this speaks to the strength of our institutional framework combined with our prudent attitude. While this global downturn affects us all, in Canada’s case, in both the overall economy and the housing market in particular, we went into this downturn in very good shape. While it has had some impact, clearly it has been nothing on the scale that other countries have seen.”Kinsley goes on to pinpoint three factors underpinning Canada’s strong performance. “First, the strong economic fundamentals of the country going in to the downturn. Second, the very strong banking system in this country, and third we have a very prudent housing market. You combine

Creating strong foundationsHome pages: analyzing housing

21December 2009

Housing in CanadaAccording to the 2006 Census, an average of 240,000 newcomers ►arrive in Canada each year. As a result, roughly two-thirds of Canada’s annual population growth now comes from net international migration.In 2008, new home construction in Canada was above the 200,000 ►unit level for the seventh consecutive year and housing-related spending contributed just over C$300b to the Canadian economy.Gains in new construction were recorded in Newfoundland and ►Labrador (23.1%), Saskatchewan (13.7%), Ontario (10.2%) and New

Brunswick (0.8%). Decreases were recorded in Alberta (-39.7%), Nova Scotia (-16.2%), British Columbia (-12.4%), Prince Edward Island (-5.1%), Manitoba (-3.5%), and Quebec (-1.3%).Under the Affordable Housing Initiative, the federal government, ►through Canada Mortgage and Housing Corporation, provides contributions to increase the supply of affordable housing. As of 31 December 2008, more than 41,000 units had been completed under this initiative.

Home builders are increasingly taking a water-sensitive approach to ►urban design, viewing it as an important part of efforts to encourage the development of healthy, energy-efficient sustainable homes and communities. Provinces such as British Columbia, Nova Scotia, Ontario and Saskatchewan have already included, or are in the process of including water efficiency in both their provincial water strategies and building code regulations.

Source: 2009 Canadian Housing Observer, Canada Mortgage and Housing Corporation.

those three things and the result is that we have not seen the types of problems that have been experienced elsewhere.”From a housing perspective, the biggest impact of the downturn has been the overall lack of capital or liquidity. “But again, we had tools here in Canada that allowed us to act quickly,” Kinsley points out. “The government of Canada, through CMHC, purchased insured residential mortgage pools from Canadian financial institutions enabling them to access stable long-term financing, which in turn helped them continue lending to Canadian consumers and businesses. As these loans are already mortgage-insured by CMHC — that’s part of our legislative regime — this provided a level of liquidity with no additional risk to the taxpayer.” Looking ahead, Kinsley would like to attract more private sector interest and participation in the area of affordable housing. “The private sector could offer some creative ideas and possibly do more to help with some costs associated with addressing that need in our country,” she says. “In addition, I think that ensuring that we are always looking for opportunities to diversify mortgage funding sources is important. It’s the old adage that ‘“you shouldn’t put all your eggs in one basket.”’Increasing the energy efficiency of housing is also a priority. “Here in most parts of Canada, we have a very cold climate for a long part of the year, so this is a very practical issue for us. There are tremendous opportunities to really push forward on that frontier. Not only would this make homes more comfortable for occupants but also, at a broader level, could result in significant reductions in energy consumption.”

In 10 years’ time, while Kinsley expects to see homes which are more energy efficient, she is less sure about how communities will be dispersed across the country. “While land availability in many cases may not be the constraint, I think there are other factors to consider,” she says. “We really have to be efficient when planning future housing needs. Many municipalities are very engaged with, respect to on the one hand protecting green space, and on the other hand planning for rapid expansion. “How to balance increased demand for housing with the impact on the environment is creating some very healthy debates amongst policy makers across the country. I expect the approach will vary from region to region, but there’s no doubt that it is a very interesting time for all of us. Only time will tell what the future holds.”

About the authorJulie Mills is a senior manager with Ernst & Young LLP in Canada.

“ There are tremendous opportunities to really push forward on increasing the energy efficiency of housing”

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Guiding the global recoveryPolicy-makers need to keep public deficits and debt under control so that the private sector will once again become self sustaining. This will require not just expertise in financial management, but a new approach to governance, says Philippe Peuch-Lestrade

23December 2009

How to best respond to the economic downturn has been a challenge for governments the world over. What interventions are necessary? How will the markets react? What measures can we afford? While these are just some of the questions that have tested policy-makers and administrators over the last two years, governments of nearly all countries with developed economic assets have responded to the crisis proactively.Most took enormous fiscal measures, and while it is too early to draw lessons about the effectiveness of many of these stimulus programs beyond their role in calming the markets, it is clear that the debt incurred has increased the pressure on governments to become more efficient.

New Zealand and Canada may be separated geographically by thousands of miles but their respective housing needs are uncannily similar.Delivering quality, affordable housing is the overriding aim; a target made more complicated by the impact of the global financial crisis and the fluctuating levels of supply and demand.Lesley McTurk and Karen Kinsley are both housing specialists, leading their respective organizations after accumulating many years’ experience of this sector. They are therefore well placed to judge the evolving housing needs of their respective countries. Affordable housing looms large and, quite rightly, both agree there is no catch-all solution to the problem — this goal can only be tackled through a variety of measures and programs.In New Zealand, McTurk’s organization juggles home ownership loans with, amongst other things, education for people on low to medium incomes and partnerships with support for councils and community groups wanting to increase their involvement in providing social housing. In Canada, meanwhile, the focus ranges from improving building standards to publishing what aims to be objective and reliable housing information.Affordable housing needs to cater for the requirements of a wide spectrum of people. While those in long-term need generally receive priority, there is an increasing number of people who cannot access housing through the open market. This is because both open-market rent and purchase prices are unaffordable in relation to their incomes. This has led to more innovative thinking around methods of ownership and occupation, such as shared equity products.On the impact of the financial crisis, New Zealand’s housing market has, so far at least, escaped relatively unscathed. Not that the sector is out of the woods, however. With unemployment yet to peak, the recession is likely to place more pressure on the country’s affordable housing stock as citizens struggle to

make rent and pay their bills. Canada, thanks to its strong economic fundamentals, is in a better position it would seem.Not all countries have been so fortunate. As the recent events in Dubai demonstrate, property can be all too vulnerable to market instability. And in the UK, for example, the housing sector has been badly affected by the recession with new housing starts falling to levels last seen in the 1930s. Despite the injection of significant government subsidy in various forms in order to support the house-building industry and preserve capacity in the sector, the economic downturn has exacerbated the mismatch of supply and demand across the whole housing market, with affordable housing supply being severely affected.In the future, governments and housing agencies around the world will seek to involve communities in the delivery of housing services. Not only does increasing citizen involvement help ensure that national priorities are in tune with local needs, there are also cost and quality advantages which will be especially relevant in this new age of austerity.Housing remains at the heart of robust and sustainable communities. Ensuring people have access to appropriately priced, high quality housing in areas in which they want to live remains a shared vision, but important choices need to be made as to how this can best be achieved. A range of delivery models which can be flexed to fit local circumstances, the public and private sectors working together and the involvement of local communities are the key elements to enabling the affordable housing sector to continue to grow.

Taking stock: examining the latest housing developmentsEnsuring people can live in high-quality, sustainable places is the priority of housing leaders in both New Zealand and Canada. How best to go about this, says Ernst & Young’s Elizabeth Austerberry, is the key question

About the authorElizabeth Austerberry is a director with Ernst & Young LLP. She has over 25 years experience of the residential sector, and is currently advising both the public and private sectors on affordable housing delivery.

“ In the future, governments and housing agencies around the world will seek to involve communities in the delivery of housing services”

Home pages: analyzing housing

Page 13: Vive la révolution

25December 2009

The stimulus has come at a high price. To fund their programs, many national governments and public entities were forced to tap into public funds and resources that, in some cases, were already in dire straits. While these measures were effective in preventing even greater deterioration in the global economy, they resulted in a huge increase in government debt levels. As of 2009, the ratios of government gross debt to GDP were at historic highs in several developed countries, according to the IMF. These included Canada, 75%; France, 74%; Germany, 79%; Italy, 115%, Japan, 217%; the UK 63%; and the US, 87%, up from 63% just two years ago.

Most leaders recognize that these levels of public debt are unsustainable, and most intend to make corrections. Indeed, even before the crisis began, France had elected Nicolas Sarkozy on a reform platform that promised sweeping changes to the French state, as well as the revitalization of its economy through business liberalization. Prudence is not always popular, however.While hard choices will still have to be made, efficiency gains could make a huge difference in reducing the severity of the financial squeeze. The smart application of new technologies and modes of communication, combined with the use of some of the same management techniques that have cut costs and improved outcomes everywhere — from the assembly line to the operating room — may offer a way to reduce the scale of the dilemma and provide new tools for future challenges.

We believe there are three important lessons that can be drawn from recent events:1. Stimulus programs need to be administered carefully and transparently

to help rebuild public trust and confidence.2. High debt levels mean governments cannot easily return to business

as usual.3. A bold reform agenda is required to turn the crisis into an advantage.Governments have responded to the global recession with complex, multifaceted plans. Many included regulatory changes, seizures of companies and macroeconomic actions to control certain economic indicators such as the unemployment rate.

It seems to have worked. Most economies have stabilized, and equity and trade indices have bounced back. But recent experience suggests that stimulus programs carry two basic risks.First, there may be unintended consequences. For example, almost two-thirds of the responses were geared towards boosting short-term demand. Consequently, many were entered into without taking time for the rigorous cost-benefit assessments that would have been undertaken in normal circumstances.Second, the execution of a program may be faulty. It is important for governments to effectively manage their own costs, verify that proper controls are in place, and maintain high standards of governance and transparency. If they are to lead their constituents through these difficult times, leaders must first put their own houses in order.

“ If governments are to lead their constituents through these difficult times, leaders must first put their own houses in order”

“ While hard choices will still have to be made, efficiency gains could make a huge difference in reducing the severity of the financial squeeze”

Guiding the global recovery

In our view, while it is difficult to treat a recession as an opportunity, governments now are left with no other choice but to deliver a lasting cultural shift. The growing budget deficits and continued structural pressures, such as rising citizen expectations, aging populations and climate change, demand more systemic changes. The question is how to do it.Taxes often can’t be raised without damaging the economy, and programs can’t be cut without affecting citizens or harming a part of the economy that depends on the public sector.What is needed is sound leadership to drive through reforms. The most successful change programs have been delivered when political leaders made reform a top priority and worked with public servants to make this ambition a reality.The good news is that from financial regulations to better auditing processes, from project-management software to sophisticated accounting standards, the tools that will enable governments to be more transparent and accountable are ready to be implemented. New delivery mechanisms and greater customer choice will help to do more with less, while improving resource allocation will encourage organizations to focus on their top priorities.In the end, the financial crisis may prove to be the catalyst that accelerates public service reform and delivers lasting benefits for citizens around the world.

For further reading please visit: www.ey.com/gps

About the authorPhilippe Peuch-Lestrade is the Global Government and Public Sector Center Leader for Ernst & Young. He has been closely involved in the government sector in France for the past 18 years.

Page 14: Vive la révolution

December 2009 27

Rebuilding for the future

With the global economy showing signs of stabilizing, the emphasis now needs to shift from crisis management to strategic planning, says Craig Baker

When the credit markets first started to contract in 2007, few would have predicted the extraordinary period that followed.In response, most governments in the developed world have so far focused on short-term measures including bank rescues, programs to prop up ailing industries such as automotive and construction, and increased spending on infrastructure. Many countries have adopted plans to protect vulnerable groups by strengthening unemployment benefits or by providing cash transfers to the poor, the elderly or children. These payments will protect the most vulnerable, and the they are likely to prompt increased citizen spending that will stimulate ailing economies.Although the early signs are that these measures appear to be working, the task facing our political leaders remains daunting. Governments today face ever-growing demands for services. As demographic compositions change, the capacities of welfare, healthcare and infrastructure must grow and change to cope with the public’s evolving — and increasing — needs.Climate change is creating another huge and unprecedented challenge. With global warming accelerating, the Copenhagen Climate Conference taking place between 7–18 December is the last opportunity for governments around the world to design a workable successor to the Kyoto Protocol.

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Balancing so many high priorities grows ever more difficult. Even the governments of the richest countries in the world are struggling to provide adequate financial and human resources without damaging the economy. Structural issues are another challenging factor. The distance between centralized strategies and systems and frontline decision-making is often vast. Some of this is a function of politics, but some of it is simply because the 20th-century models of government administration still followed by many of the world’s governments are unequal to the complex challenges we face.Policy-makers increasingly agree that what is needed to cope with these challenges is nothing less than a new model for the financing and delivery of public services, based on a combination of collaboration and competition between public, private and not-for-profit organizations. In addition, the need to harness new technologies to run government efficiently will create an ongoing set of operational challenges. The focus needs to return to structural reform — this time with renewed urgency and energy.We have identified four key challenges that will help government and public sector organizations identify their most pressing priorities: How effective are you? How efficient are you? How well do you manage your assets? And finally, do your stakeholders view you positively?

In order to address these challenges and to take this agenda of public service reform forward, our experience shows that nine core competencies, required. (See sidebar below.)The most effective and successful public sector organizations are already looking to the future. In our next two articles, Arnauld Bertrand explains how policy-makers in France are in the process of delivering lasting, systemic reforms, and Deborah Holmes then argues that government and business in the US are increasingly working in partnership to address social and economic challenges.This is a challenging and fast-moving policy environment, but the clock is ticking. Let’s seize this opportunity to reshape government for the better and make it fit for the long term.

For further reading please visit: www.ey.com/gps

About the authorCraig Baker is a partner in the UK firm, Ernst & Young LLP and Global Advisory Leader for the Government and Public Sector.

29December 2009

Vive la Révolution

Arnauld Bertrand examines how French policy-makers are driving forward plans for a sweeping modernization of the state

Ernst & Young’s nine core components for successful public service reform1. Citizen focus: customer relationship management puts citizens at the

heart of service design, helping to ensure that government priorities better reflect local needs. It also increases the quality and control people have over public services and helps to reduce costs. Greater transparency in reporting performance and value for money offers an opportunity to re-engage directly with citizens and encourage a new relationship between citizens and the state.

2. Strategic performance: the right strategic direction should drive the delivery of ambitious policy goals. Service delivery requires working closely across departmental boundaries, collaborating strategy development and performance management to deliver value.

3. People and organizational change: effective change helps maximize that the power and value of the team so it can reap the benefit of investments from conception through detailed organization design, stakeholder engagement and implementation.

4. IT advisory: better use of technology supports frontline and back office services. This drives consistency in the delivery of information and communication technology (ICT) projects to time and budget, thereby allowing for improved value on ICT spending.

5. Finance: finance professionals should be in the frontline of government management. The application of clear and consistent policies, controls and procedures will help to make better spending decisions and ensure that resources are deployed efficiently.

6. Supply chain and operations: supply chain management helps to ensure value from external resources. Value driven from business process outsourcing as well as traditional goods and services helps create new service delivery models. It brings the best of the private sector to bear on public service delivery.

7. Program advisory services: against a background of changing priorities, governments need to be confident they are effectively running programs that are aligned to their strategic objectives.

8. IT risk and assurance: key to being in accordance with security and compliance requirements, this involves identifying and managing IT risks, improving risk controls and processes, and ultimately reducing business risk.

9. Risk: risk management helps mitigate both financial and reputational issues through effective governance, compliance and control. It pulls together all of the elements into a well-managed whole.

Source: Ernst & Young, “Rebuilding for the future”, August 2009.

Rebuilding for the future

Page 16: Vive la révolution

Although France’s economy, the fifth largest in the world, has not proved immune to the global recession, it appears to be weathering the storm better than many.Its small level of growth — 0.3% — in the second and third quarters of this year will doubtless have pleased President Nicolas Sarkozy, who had made France’s economic performance the principal focus of his administration even before the collapse of Lehman Brothers proved the catalyst for the worst global downturn since the Great Depression.Sarkozy’s bid to deliver lasting, systemic change has been based on his General Review of Public Policies (Révision Générale des Politiques Publiques, RGPP), a set of proposals launched just after his election. The plans have committed the French government to a course of unprecedented modernization that affects all of France’s ministries. The results have been striking: 374 ideas are expected to generate nearly €7.7b of savings by 2011.The drive for reform has been made possible by a combination of five key factors:

Strong, personal commitment and leadership from the ►French presidentSupport from a broad consensus of elected officials, ►citizens and public servantsA constrained budgetary environment ►Lessons learned from similar experiments abroad, such as ►program reviews in Canada and spending reviews in the United KingdomThe knowledge acquired from transformation projects ►under way within the administration, such as the reform of the state’s accounting and financial processes and modernization of its financial information systems.

The RGPP differs from previous reform attempts in France. This time, joint teams of government auditors and private sector advisors conducted a systematic review of how the French government is organized, as well as a detailed analysis of its policy and program management.The success and longevity of the planned reforms, however, depend on a new system for implementation and monitoring:

Steering and monitoring committees ► at the highest levels of government: a steering committee chaired by the French president, and a monitoring committee run jointly by the secretary general of the presidency and the director of the office of the prime ministerOperational management ► provided by a dedicated team of senior public servants, the Directorate General for Modernization of the State (Direction générale de la modernisation de l’Etat, DGME) in association with the State Budget Directorate and the Human Resources DirectorateA transformation steered within each ministry ► by its secretary general, with a dedicated support team and assistance as needed from the DGME and advisorsA structured ► transformation methodology, with project managers for each proposal, an implementation calendar, monitoring indicators and published inter-ministerial scorecards.

The RGPP is already breaking new ground. For example, the reform of France’s local government, long sidelined as a

difficult and complex subject, is now well under way. About 300,000 civil servants have been affected by the creation of local inter-ministerial directorates or the merger of regional bureaus. These moves have reduced the number of regional organizations from 20 to eight and consolidated various regional support functions. Another area of focus is the strengthening of procurement systems. The recent creation of a central purchasing authority aims to improve and professionalize the diverse practices currently in place within government. This alone is expected to generate €1.3b in savings.Both citizens and the private sector stand to benefit from the reform program. The merger of tax assessment and collection departments will result in one-stop tax collection points. Entrepreneurs will benefit from steps to make it easier to set up a business, tax filing will be streamlined and more administrative requirements will be made available online.But while the RGPP is expected to result in public services that are more efficient and offer an improved service quality, it is probably just a first step. Although €7.7b in savings by 2011 is a substantial figure, it’s not enough to overcome a projected budget deficit of €116b in 2010. With the financial crisis accentuating constraints on public finances, there is an urgent need to go further while ensuring the implementation of projects already in progress.

Now is a good time to question the capacity of government intervention itself. We must look at improving the effectiveness of policy through evaluation; consider outsourcing certain policies or functions whenever relevant; and perhaps extend the scope of the RGPP to public bodies such as local authorities, hospitals and welfare agencies.The transformation of the state will be realized, however, by the rising demands of its citizens and by the hard work of its public servants. Delivering increased worker skills, strengthening and rewarding initiative and accountability, promoting the emergence of project managers, ensuring an attractive career path for the best talent, and questioning the role of ministerial cabinets all merit further analysis within the modernization agenda.The RGPP is revolutionizing the state by putting the user, the tax-payer and citizen at the heart of the system and shifting from a means-based management philosophy to one based on results. But it’s early days. The scope still remains to do more.

31December 2009

The Directorate General for Modernization of the State (Direction générale de la modernisation de l’Etat, DGME) provides support and assistance to ministries in implementing their modernization projects. More than 50 projects were completed within the last year, involving virtually every ministry. The overarching principle of our work is always the same: develop clear targets based on a diagnostic analysis, identify solutions to be implemented in relation to these targets and ensure total follow-through until the desired end result is achieved.Among other things, the DGME has defined the methodology for monitoring the program’s implementation. This takes the form of a semi-annual progress report submitted to the president’s cabinet. Each of these reports (available at www.rgpp.modernisation.gouv.fr) offers a chance to highlight the progress achieved and make the decisions needed to anticipate challenges and secure the expected impact.Much like a large company, the state needs to have an overview of its activities with tools to effectively monitor them. The private sector can offer government new skills such as experience in change management and project management, or contributions in more-specific areas such as the overhaul of information systems, construction of indicators, or tools for monitoring and analysis.Drawing from methods that have already proved themselves in the private sector such as “lean management” — based on the critical analysis of internal procedures and a strong emphasis on employee experience — reorganization solutions that generate savings can be identified quickly. Modernizing public management and giving supervisory personnel the opportunity to be actively involved in the transformation process are also key.The initial results mark a profound change in the delivery and efficiency of public services. This can be seen in the reorganization and pooling of defense base support functions in the armed forces, as well as in the merger of the agricultural bureaus, which ended the proliferation of government contacts required for farmers, manufacturer, and consumers.We are continuing to pursue our objectives and are determined to respond even better to the demand for savings and service quality. With citizens’ expectations rising, we are now identifying new areas for reform, such as operational and support functions and operating expenses. The acceleration of these projects will simplify procedures and continue to improve services to users.

François-Daniel Migeon is Leader of France’s Directorate General for State Modernization.About the author

Arnauld Bertrand is a partner with Ernst & Young and Associés and leads the Government and Public Sector Advisory practice in France. He advises the French government and international organizations on major performance improvement programs.

The view from inside government

“ The initial results mark a profound change in the delivery and efficiency of public services”

Vive la Révolution

Page 17: Vive la révolution

Delivering a better way of life

The financial crisis has encouraged government and business to work in partnership to address systemic social and economic

problems. Deborah K. Holmes analyzes US social investments during the downturn

December 2009 33

Page 18: Vive la révolution

35December 2009

an astonishing US$18t in assets. And the number of signatories has risen rapidly in the last two years despite the financial crisis.Finally, corporate responsibility can help a business prosper in the long term by creating a better business climate overall. We see our relationship with Kiva.org, the world’s first person-to-person micro-lending website, as more important than ever. Kiva connects micro-entrepreneurs with people willing to lend them small sums. Ernst & Young donates substantial professional services to Kiva to ensure the transparency of this process, and we are delighted that Kiva is now assisting entrepreneurs in the US, as well as in developing countries.Whether they are minimizing their carbon footprint or increasing access to education, American corporations are focusing on sustainability. It’s impossible to sustain a healthy society, and therefore healthy markets and healthy businesses, without educated young people, a marketplace that encourages entrepreneurship and a stable climate.Ultimately, downturns offer opportunities. They demand innovation, so entrepreneurs often flourish in them. People with new ideas for solving social problems also tend to flourish in downturns, whether they work in government or in private industry. With unemployment and underemployment currently at their highest levels in the US since the Great Depression, it will be a long time before the pain of the current downturn is fully behind us. However, given the efforts that both business and government are expending on education, a sustainable environment and new technologies for a better way of life, there may well be an element of renaissance in any coming recovery.

First, they gain the goodwill of their own increasingly civic-minded employees. Social investments can keep people motivated when a difficult economy makes raises and promotions scare. At Ernst & Young, we’ve found that volunteering is most meaningful when our people are using their professional skills to solve problems in their communities. As a result, we focus on issues — the environment, education, and entrepreneurship — where our training as business advisors is particularly useful.Corporate responsibility efforts can be especially valuable in a downturn — not only for their influence on employees, but also for their influence on costs. Concentrating on environmental sustainability means spending less money on electricity, fuel and waste of all kinds.

The smartest organizations also understand that corporate responsibility can spur innovation and open up new markets in powerful ways. One of the most interesting examples belongs to UK-based mobile telecommunications company Vodafone. Vodafone and its local partner Safaricom initially began offering mobile phone money transfers to people without bank accounts in Kenya as a way to help the United Nations meet its Millennium Development Goals. Today, this is a thriving business, with 6.5 million customers in Kenya alone. Investors, too, increasingly fall into the category of socially responsible purchasers. The United Nations-backed Principles of Responsible Investment now has 560 signatories: asset owners and investment managers who have pledged to incorporate environmental, social and corporate governance considerations into their investment decisions. Together, they represent

About the authorDeborah K. Holmes established and leads the Corporate Responsibility function at Ernst & Young LLP, where she focuses on skill-based volunteerism in education, entrepreneurship and environmental sustainability.

“ Corporate responsibility can help a business prosper in the long term by creating a better business climate overall”

Businesses, on the other hand, have to manage their cash very carefully in a recession. But they are still able to react to the needs of the communities around them very quickly. For example, in response to the suddenly plummeting economy, the GE Foundation directed US$20m in funding to food and shelter organizations in December 2008.Clearly, some businesses are too cash-strapped to maintain their previous levels of spending on good causes. And given the suddenness and severity of this recession, it would not be unreasonable to expect a mass withdrawal from the civic sphere on the part of American businesses. But this has not occurred. On the contrary, many businesses have responded to the crisis by doing more. The Foundation Center, an online directory of private, philanthropic and grant-making foundations, forecasted that although 51% of corporate foundations expected to decrease their total giving this year, 49% expected it to remain unchanged or to increase.In addition, corporate giving now represents just a small part of businesses’ engagement in their communities, and it sits under a much larger umbrella that is often called “corporate responsibility” or “corporate social responsibility.” Businesses no longer contribute passively to important causes. In the US, they are often leading the charge on issues such as environmental sustainability, whereas government action has been slow. Corporate responsibility is now a key part of business strategy, identity and even survival.Many companies are staying committed because there is such a strong business rationale for their social and environmental investments. A recent Boston College Center for Corporate Citizenship report suggests that the best corporate responsibility programs can yield direct financial returns of three to one. It is also an important means of improving the battered reputation of corporate America after the many business scandals of the last 10 years.Of course, corporations engage on the social and environmental front.

No one would claim that the severe global economic downturn of the last year was a desired event. However, it has offered countries around the world an opportunity to address both challenging social issues and their physical infrastructure as they seek to rebuild confidence in their markets.In the US, these issues include the country’s excessive carbon consumption and the obstacles faced by entrepreneurs hoping to remake its energy landscape, as well as an uneven educational system that is not doing enough to prepare young people for a technology-driven future.

Businesses and government are now working together to make substantial investments aimed at solving some of these problems.Unlike most businesses, government agencies now have large amounts of cash to spend on important social goals, thanks to the massive US$787b economic recovery package that the US adopted in February 2009. The challenge for American government agencies is spending these sums wisely, while at the same time spending them quickly enough to help alleviate the worst of this recession.The consensus is that while the spending is on track, it is slow to feed through given the political risks of acting precipitously and the simple fact that much of the money will be distributed through state governments, adding another layer of bureaucracy. Of US$499b to be spent on various projects, just US$158b had been distributed by the end of October.

“ Corporate responsibility is now a key part of business strategy, identity and even survival”

Delivering a better way of life

Page 19: Vive la révolution

37December 2009

Europe’s postal services are in a state of flux. Originally, postal services were state-owned monopolies, but since the publication of the first EU Postal Directive in 1997, the market has been slowly opening to competition. This liberalization has been occurring at the same time Europe’s citizens have been enjoying new, faster methods of communication such as social networks, email and texting. In fact, social networking is now more popular than email, according to 2009 data from digital research company Nielsen. Postal operators must become more efficient and innovative to prosper in this rapidly evolving market.Yet doing so is far from straightforward. The UK, for example, has recently experienced a wave of national strikes from postal workers protesting the Royal Mail’s attempts to institute new working practices and pay levels.The Royal Mail’s travails — its own accounts show it currently handles 75 million letters each day compared to 84 million a day in 2005 — is symptomatic of the difficulties traditional postal operators face as they seek to adapt to this new environment. The global recession hasn’t helped. More banks, phone companies and other heavy users of the postal system are stepping up their reliance on electronic delivery methods to control costs.Despite these challenges, European citizens continue to rely on the post for certain services. The European Commission estimates that approximately 135 billion items are posted every year, and more generally, postal services provide vital infrastructural support for commercial, governmental and social activities across the EU.To safeguard the future of their industry, it is critical that operators plan for the future by finding new solutions to extend their range of services to citizens.What about using post office networks to deliver services that are not strictly related to the mail? In many countries this is already happening. Post offices have been used to create a local banking infrastructure that can provide extra financial services to people and businesses currently not served by traditional lenders. The provision of government forms, payment of fines and applications for energy-saving schemes are just a few other examples of what can be on offer in such “post banks.”Many citizens, particularly those living in more remote rural areas, would surely welcome post offices becoming a one-stop shop for government and financial services — in addition to the creation of thousands of jobs. With the global economic downturn leaving the conduct of the banking industry very much under the spotlight, there is surely an opportunity for post offices to step in and help the financially excluded.

Postal operators also would be well-advised to upgrade their technology, a move already begun by Earth Class Mail (ECM), a new system originating from the US that allows businesses and individuals to access, read and fully manage their postal mail online. Customers can log on to a secure ECM account to view scanned images of their mail envelopes. They then decide which items to have opened and securely scanned so they can read the contents online, and which items should be recycled, shredded, archived, or forward-shipped to their location. The assumption is that it is cheaper to deliver a document over a computer network than by hand, especially when the recipient lives in a rural area and when what is delivered via mail begins its life as an electronic file.ECM’s pioneering work can help national postal services deliver documents digitally and securely, and in doing so it extends citizens’ ability to access and receive their mail — a development that is likely to be welcomed by many, not least because of the environmental benefits this entails.With the direct mail industry in particular generating substantial amounts of paper waste, a greater focus on environmental credentials and sustainability complements wider-business priorities around cost reduction and new revenue streams. In the UK, for example, the Royal Mail’s Carbon Neutral door-to-door product reduces packaging and omits plastic windows from envelopes. Such offerings are likely to become more widespread in the future.

Another option traditional post operators are considering is to revamp their pricing structures to better adapt to customer needs. For example, the world’s largest logistics group, Deutsche Post, is launching a flat rate for postal charges that will allow its customers to send as many letters as they wish at a fixed price. Being flexible enough to offer a diverse range of services and prices will secure competitive advantage as well as benefit the customer.Certain elements of postal services — such as the presorted direct mail market — are more susceptible to competition than others. It is these areas, where competition is able to develop, that can deliver the culture change among postal workers that is necessary for success. Postal operators must decide whether to implement change from within — such as in the Royal Mail’s case — or to privatize its services, such as Deutsche Post in Germany, or TNT in Holland, both of which are now world leaders.What’s undoubtedly clear, though, is that the old systems of postal services are changing. In the future, the post will have to be greener, and postal operators will have to become better at offering a varied range of offerings that are directly tailored to citizens’ needs. Building a new relationship with customers in what is a fiercely competitive environment will not come easily. But the signs are that the last post is not yet ready to be called.

About the authorStéphanie Merle-Mortel is Ernst & Young’s Global Postal Industry Leader. She has been closely involved with French postal market for the past eight years.

“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, Stéphanie Merle-Mortel examines Europe’s evolving postal sector and how it is adapting to the twin challenges of EU reform and modern communication.

Signed, sealed, delivered?

Government and enterprise

Client corner: a view from France

Ernst & Young is right to say the worldwide postal industry has no choice but to innovate. In the second quarter of 2009, addressed mail volumes worldwide fell 12.4% compared with the same period last year, according to the International Post Corporation.Many postal companies should reconsider their management processes, and in particular their HR systems. We need to be able to support innovators by matching them with opportunities and provide the appropriate support to make things happen.New guidelines have to be set up to make all companies — not just in the postal industry — more entrepreneurial. It’s not just about strategy and technology, HR and people’s behaviors are just as integral to the future prosperity of Europe’s postal services.

Bruno Chaintron is director of La Poste Global Mail.

New Zealand’s story of success

In 1998 New Zealand’s postal market was opened to full competition, removing New Zealand Post’s (NZP) monopoly on the delivery of the standard letter. Under this new system NZP — established as a state-owned corporation in 1987 — is still required to provide a universal service, but there is no postal regulator. Any business can now register with the government as an operator to process and deliver mail.Even though NZP still has the majority market share, there are now 27 companies registered in the market. For citizens and businesses postal tariffs have come down, and more, improved and innovative services are available.

Postal services in the EU

The Third Postal Directive published in February 2008 proposes the abolition of legal monopolies on postal services by 31 December 2010, with a two-year delay for some countries.The directive requires member states to continue to ensure a universal service for all customers, including collection and delivery of mail at least five days per week at affordable prices throughout the territory.Prior to the 1997 directive, postal services often were fragmented across the EU. Ownership usually was vested in public corporations, and while some services within the sector were open to competition (express services), others were not (letter mail).

-3.00%

-1.20%

4.82%

US$1.03

Source: This data was drawn from the annual report and accounts for each country’s national postal carrier and reflect mail only services.

-4.20%

-4.50%

-3.74%

0.20%

-2.00%

0.20%

2.04%

0.90%

-2.00%

-2.00%

-1.20%

15.65%

-2.40%

0.30%

14.90%

-5.50%

-6.70%

-5.00%

3.10%

-0.85% -1.04%

Key

Mail volume (increase or decrease)Turnover (increase or decrease)

Operating loss as a % of turnoverOperating profit as a % of turnover

Weighted cost of priority mail for a standard letter in US dollars, using August 2009 Bank of France average monthly exchange rates and OECD Purchasing Power Parity indices

US$1.10

US$0.74

US$0.78

US$0.70US$0.56

US$0.44

US$0.97

“ Postal operators must decide whether to implement change from within or to privatize”

Germany and the Netherlands are leading the world with innovative and profitable postal services

Page 20: Vive la révolution

39December 2009

Spotlight on China

Unlike other countries, China has been only slightly affected by the financial crisis. Its economy has maintained a steady increase, with a GDP growth rate of 9% in 2008 and 8.4% in 2009, according to the United Nations Development Program (UNDP). The gross value of industrial output is 44.60 trillion yuan in 2008, with a growth rate of 10.07% compared to that of 2007.

However, the manufacturing industry’s exports have seen a sharp fall from November 2008. The exports of the first seven months this year have declined by 22% compared with the same period 12 months earlier. Due to the decreased export demand and weakened cost advantage, our low paid manufacturing exports were heavily threatened. It is now time for China to accelerate structural reforms to its industries.

To strengthen the economic recovery, China has unveiled a 4 trillion yuan (US$586b) stimulus package. Our public services are one of the principal areas of investment. Hydraulic engineering and environment and public facilities management received increased investment of 32.2%, and investment in sanitation, social security and social welfare has grown by 30.6%. Public administration also has been boosted by increased spending of 23.2%. This is expected to trigger higher standards in sectors such as e-government.

The government has sought to adjust China’s industrial structure by unveiling plans to develop service industries. This will change the global competition for outsourcing and create opportunities for Chinese corporations to secure competitive advantage. In the post-crisis era, we believe these moves to stimulate China’s outsourcing industries will deliver strong and rapid economic growth.

Ernst & Young’s experienced public services team has earned a strong reputation by successfully delivering a diverse range of measures in areas such as outsourcing and industry and strategic development. We are continually working with our clients to help them implement policy, create operational performance efficiencies and deliver major programs on time and to budget. We are looking forward to supporting China’s economic growth in the years to come.

About the authorMartin Qi is a partner with Ernst & Young (China) Advisory Limited. He has more than 20 years of professional experience in the public sector, telecommunications and utilities. He is also the certified outsource industry expert appointed by China’s Ministry of Commerce and Ministry of Industry and Information Technology.

Global Government and Public Sector Center of Excellence

Area contacts

Alessandro CenderelloGPS Markets Rome, Italy

+39 066 7535 531 [email protected]

Mildred TanArea Leader — Far East Singapore

+65 6309 8200 [email protected]

Philippe Peuch-LestradeArea Leader — EMEIA Paris la Défense, France

+33 1 46 93 72 62 [email protected]

Citizen today team

Philippe Peuch-LestradeGPS Leader Paris la Défense, France

+33 1 46 93 72 62 [email protected]

Uschi SchreiberArea Leader — Oceania Sydney, Australia

+61 2 8295 6706 [email protected]

Val LyonsArea Leader — Americas Washington DC, USA

+1 703 747 0466 [email protected]

Craig BakerManaging Editor

+44 (0)20 7951 2626 [email protected]

Matt MercerChief Correspondent

+44 (0)20 7951 3772 [email protected]

Chris StaerckResearch Analyst

Craig BakerGPS Advisory Leader London, UK

+44 (0)20 7951 2626 [email protected]

Nobukazu KatoArea Leader — Japan Tokyo, Japan

+81 3 3503 1137 [email protected]

Marc E. AndersenAmerica Markets Leader Washington DC, USA

+1 703 747 0825 [email protected]

Gemma WilliamsDevelopment Director

+44 (0)20 7951 0694 [email protected]

Henri YanGraphic Designer

Contacting our team

About Ernst & Young’s Global Government and Public Sector Practice

Around the world, governments and not-for-profit organizations are continually seeking innovative answers to complex challenges. They strive 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 upon building capability to deliver improved public services. Drawing on many years of experience, we work with our clients to help strengthen and secure organizations, deliver value for money and achieve lasting improvement.

Ernst & Young’s Global Government and Public Sector Center brings together seamless teams of highly skilled professionals from our audit, tax, transaction and advisory services. We are inspired by a deep commitment to working with our clients to help them meet their goals, achieve their potential and enhance public value.

It’s how Ernst & Young makes a difference.

23 provinces: Anhui, Fujian, Gansu, Guangdong, Guizhou, Hainan, Hebei, Heilongjiang, Henan, Hubei, Hunan, Jiangsu, Jiangxi, Jilin, Liaoning, Qinghai, Shaanxi, Shandong, Shanxi, Sichuan, Yunnan and Zhejiang

Autonomous regions: Guangxi, Nei Mongol, Ningxia, Xinjiang Uygur, Xizang (Tibet)

Municipalities: Beijing, Chongqing, Shanghai, Tianjin

Chief of state: President HU Jintao (since 15 March 2003); Vice President XI Jinping (since 15 March 2008)

Head of government: Premier WEN Jiabao (since 16 March 2003); Executive Vice Premier LI Keqiang (17 March 2008), Vice Premier HUI Liangyu (since 17 March 2003), Vice Premier ZHANG Deijiang (since 17 March 2008), and Vice Premier WANG Qishan (since 17 March 2008)

Cabinet: State Council appointed by National People’s Congress

Elections: President and vice president elected by National People’s Congress for a five-year term (eligible for a second term); elections last held 15–17 March 2008 (next to be held in mid-March 2013); premier nominated by president, confirmed by National People’s Congress

Election results: HU Jintao elected president by National People’s Congress with a total of 2,963 votes; XI Jinping elected vice president with a total of 2,919 votes

Page 21: Vive la révolution

Lessons from change

www.ey.com/lessons-from-change

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