Abstract
The article focuses on the issue of admi-

nistrative structure and its development in a post-
communist context. The case of the Estonian
administrative system is analyzed. The article
aims to find out how and why a decentralized
administrative structure has formed in Estonia.
To fulfill this aim, the current organizational
landscape of the Estonian public administration is
described and its trajectories of development over
the 20-year period are discussed. The analytical
framework of the article draws on organization
theory and literature on post-communist transition.
It is found that during the 20 years of regained
independence, factors have combined in favor of
specialization over coordination in Estonia. First,
the aim of overthrowing the legacy of centralized
soviet public administration in combination with
pressures of transition and the sectoral character
of the EU accession process have contributed to
the development of a public administration with
strong ministries having a considerable leverage
over the issues falling to their areas of governance.
Second, the neo-liberal worldview of Estonia’s
politico-administrative elite and its inclination
towards a lean state and down-sizing have led
to reluctance towards investing into coordinating
functions and administrative development more
generally.

Keywords: Estonia, administrative structure,
coordination, institutionalization, post-communist
development.

POST-COMMUNIST DEVELOPMENT
OF ADMINISTRATIVE STRUCTURE
IN ESTONIA: FROM FRAGMENTATION
TO SEGMENTATION*1

Külli SARAPUU

Külli SARAPUU
Research Fellow, Chair of Public Management and Policy
Department of Public Administration, Tallinn University of
Technology, Tallinn, Estonia
Tel.: 00372-620.2661
E-mail: kylli.sarapuu@ttu.ee

* The study was supported by the Estonian Target Financing grant
no. SF0140094s08 and by the Estonian Science Foundation
grant no. 7441. It has benefitted greatly from the COST Action
IS0601 ‘Comparative Research into Current Trends in Public
Sector Organization – CRIPO’.

Transylvanian Review
of Administrative Sciences,

Special Issue, pp. 54-73

1. Introduction

The focus of this article is on the administrative structure and its development in a
post-communist context. The administrative structure has a vital importance in a state
for it directs the way public policies are designed and implemented. Organizational
forms and their modes of operation create constraints on and possibilities for
actors’ use of discretion and, as a result, shape their behavior in the policy process
(Christensen et al., 2007). Changes in a state’s organizational structure may alter the
balance between different values, shift the focus on tasks to be performed and increase
or diminish the potential for political control (Lægreid et al., 2008; Egeberg, 1999).
Consequently, administrative structure has a critical role to play in the functioning
of a politico-administrative system.

The last few decades have seen a lot of reform effort directed at changing the
administrative structures of states, both in the countries of ‘West’ and ‘East’. In the
countries of Central and Eastern Europe (CEE), the structural reforms have been of
an overwhelming magnitude. The radical shift of political regime from communism
to democracy also necessitated changes in the institutional structures of the states.
Especially in the countries that were formerly part of the Soviet Union, the question
was not so much about reforming the states’ organizations but building them up, as
the structures assumed from the communist predecessors were inadequate and in
some policy fields even absent. Consequently, the CEE countries faced the challenge
of building up administrative institutions that would be able to fulfill their roles in
a democratic policy-making and implementation cycle. Among other things, it also
meant reforming the mechanisms of cooperation and coordination in a situation where
the communist party as a central coordinating power had lost its position. Considering
that most of the CEE countries inherited fragmented administrative systems with a
high number of individual organizations, many of them designed as single-purpose
agencies (Beblavý, 2002; Goetz and Wollmann, 2001), this was not an easy task.

The article at hand focuses on the post-communist development of administrative
structure in one of the CEE countries – Estonia. In Estonia, a decentralized
administrative system has formed during the 20 years since regaining its independence
in 1991. In terms of structural development, Estonia has moved from a fragmented
system inherited from the Soviet Republic to a segmented system that relies on strong
ministries supervising their areas of governance regarding both policy and structure.
The ministries are rather small and their role is mostly confined to policy formulation.
The implementation of the policies is carried out by various agencies under their
supervision. Such a decentralized arrangement has shown both considerable strengths
and considerable weaknesses. On the one hand, there is clear accountability for certain
policy fields, accumulation of professional knowledge, the possibility for relatively
quick problem-solving and the need to spend fewer resources on central coordinating
units. On the other hand, difficulties related to solving problems that engage several
areas of governance have arisen as they defy clear responsibility and engage clashes
between different agency ideologies. Calls for a better horizontal integration of policy

sectors and for a whole-of-government approach have been voiced by social actors,
the National Audit Office and other experts. Most recently, the coordination problems
have been underlined by the OECD (2011) review of Estonian governance which
résuméd that there is considerable room for development in terms of joined-up policy
design and implementation.

The aim of this article is to find out how and why such a decentralized administrative
structure has formed in Estonia during the 20 years of regained independence
and transition to democracy. Why has Estonia’s post-communist administrative
development advanced from a fragmented to a segmented system? To fulfill this aim,
first, the current organizational landscape of the Estonian public administration is
described and analyzed and, second, its trajectories of development over the 20-year
period are discussed. The analytical framework of the article draws on organization
theory and literature on post-communist transition. The approach applied to the
organizational change can be defined as ‘transformative’ (see Christensen et al., 2007,
pp. 165-175) – it is expected that changes in the structure of the public sector are
born in a complex interplay between conscious and planned strategies of political and
administrative leaders, cultural-historical features and reform pressures originating
from the external context of organizations. At the nexus of these diverse factors of
influence, transformations occur (Christensen et al., 2007). The goal is to explain
how they have combined in the case of Estonian administrative development. The
perspective adopted can also be termed institutional. The article attempts to find
out how the Estonian administrative structure has institutionalized – what kinds of
working practices have become entrenched and why?

The empirical part of the analysis is based largely on a research exercise started
in 2008 with the aim to achieve an overview of the administrative development by
mapping all events whereby full organizations have been established, terminated or
reorganized at the center of the Estonian government from 1990 to 2010. The mapping
of events relied on the analysis of various documentation (legislative initiatives
and their accompanying notes, records of discussion in the parliament Riigikogu,
newspaper articles, different surveys and analysis etc.) in which the content and
explanations of reorganizing Estonian government structures have been conserved.
This knowledge has been complimented with information from other secondary
sources on the organization of the Estonian public administration and its development
(audits by the Estonian National Audit Office, reports by the Ministry of Finance,
Public Service Yearbooks etc.). The analysis of documented information has been
further supported by informal conversations with key persons who have participated
in the change processes at various points in time.

2. Theoretical framework

2.1. Administrative structure

There is a growing amount of international academic discussion on the issues
related to the administrative structure of states. A big part of the discourse focuses on
the phenomenon of ‘agencification’, its nature and effects (for a comparative treatment

of CEE and Western European countries see van Thiel, this issue). In their essence,
these discussions revolve around the organizational architecture of states and the
division of functions between different actors in the system. For the research interest
of this article, the concept of ‘specialization’ is of central interest. Agencification has
meant increasing specialization of the state structures. Also in the context of CEE,
it is relevant to find out how the specialization of administrative structure has been
addressed in the process of transition to democracies.

Specialization can be analyzed along two dimensions – vertical and horizontal
(Christensen et al., 2007; Egeberg, 1999; Lægreid et al., 2008). The vertical specialization
indicates how political and administrative tasks and authorities are allocated among
organizations at different levels, i.e. between ministries and their subordinate agencies.
In terms of process, it means a conversion of existing state organizations or functions
into units that are organizationally further away from the central political authorities
or the transfer of tasks to such units. The horizontal specialization focuses on how tasks
and authorities are distributed among different organizations at the same hierarchical
level, i.e. between ministries or among government agencies. Horizontal specialization
in terms of process means that existing organizations are split into smaller sub-units
or that new organizations are founded at the same hierarchical level.

In the context of a complex administrative structure, there is another side to
specialization – it enhances the need for coordination (Verhoest and Bouckaert, 2005,
p. 104). Peters (1998, p. 296) refers to coordination as ‘an end-state in which the
policies and programmes of government are characterized by minimal redundancy,
incoherence and lacunae’. Coordination becomes manifest in ‘instruments and
mechanisms that aim to enhance the voluntary or forced alignment of tasks and
efforts of organizations’ (Bouckaert et al., 2010, p. 16). In accordance with the two
dimensions of specialization, there are also two dimensions to coordination (Bouckaert
et al., 2010, p. 24). Horizontal coordination appears between organizations on the same
hierarchical tier within government, e.g. between ministries. Vertical coordination
takes place when higher-level organizations (e.g. ministries) coordinate lower-level
actors’ (agencies) actions.

New Public Management (NPM) type of agencification reforms made manifest
the negative effects of specialization. It has been discovered that agencification and
NPM’s narrow focus on organization level efficiency resulted in decoupled policy
cycles, meta-organizational coordination problems and loss of states’ overall policy
capacity (Verhoest and Bouckaert, 2005). ‘Managerial efficiency was displacing
political effectiveness’ (Verhoest and Bouckaert, 2005, p. 104). This trade-off led
to a renewed emphasis on public-sector coordination. ‘Re-integrating government’,
‘whole-of-government’, ‘joined-up’and ‘single’ government initiatives have brought
attention back to the importance of coordination within the organizational architecture
of states and its relevance for governments’ policy capacity (Verhoest and Bouckaert,
2005; see also Christensen and Lægreid, 2007; Halligan, 2007). Governments’ policy
capacity is also something that countries of Central and Eastern Europe have tried to

build up in the process of transition to democratic governance. Among other issues, it
has meant the need to deal with instruments and mechanisms that bind their public
sectors together in a situation where the communist party as the supreme coordinating
centre disappeared. Whatever the results, the change of administrative structure has
consisted of many smaller or bigger transformations that have led to the structural
configurations present in CEE countries after two decades of development.

2.2. Administrative change in CEE

There are different factors that help to explain the specific trajectories of
administrative change. Basically, these explanatory factors can be grouped into three
types: first, the conscious strategies of political leaders, second, the administrative
culture and its understanding of the appropriate course of development (alias
historical-cultural context), and third, environmental pressures, deriving both from
international as well as national contexts (see Christensen et al., 2007; Peters, 1992).
According to the transformative approach, changes in the structure of public-sector
organization can be expected to be born in a complex interplay between these three
factors (Christensen et al., 2007, pp. 165-175). Political structure, historical-cultural
context and environmental pressures have also been seen to combine for change in the
post-communist reforms of the CEE countries (see e.g. Armingeon and Careja, 2008;
Crawford and Lijphart, 1995; Eriksen, 2007; Goetz, 2001; Hesse, 1997; Meyer-Sahling,
2009). These combinations have been invariably born in specific points in time –
institutional arrangements are usually ‘a product of situation-specific compromises’
(Olsen, 2009, p. 18). The factors combine at different moments in time to produce
specific institutional formations.

With regard to the historical institutional analysis that this article is in its essence,
there are two central conceptions that must be taken into account. These are the
concepts of ‘critical junctures’ and ‘developmental pathways’ (Thelen, 1999, p. 387).
The first denotes that there are crucial founding moments that send countries along
broadly different developmental paths. The second points to the fact that further
evolution of the structure is always constrained by past trajectories. For the CEE
countries, the end of the 1980s and the early 1990s were a critical juncture – a moment
in time where fundamental change was possible and the basic rules of the coming order
in the polity, economy and society were set (Armingeon and Careja, 2008). Several
authors emphasize the magnitude and complicatedness of the changes undertaken
(see e.g. Agh, 2001, p. 238; Schmitter and Santiso, 1998, p. 70). Offe (2004, p. 502)
has characterized the initiated transformation as ‘a revolution without a historical
model and a revolution without a revolutionary theory’. At that time, a choice of
different developmental pathways was possible. However, politico-administrative
development has a strong inclination towards ‘path dependency’ (Pierson, 2000),
which means that the first years of post-communist transition were a time of critical
decisions that established the basis for the future development. Nevertheless, both
the transformations of the first years of transition and the changes appearing in the

latter years of development can be expected to be born in the interplay of the three
types of factors named above. It is just reasonable to anticipate that in different points
in time they have different weight and combinations.

The analysis of the CEE post-communist development offers several periodizations
trying to capture the temporal spirit of the transitions (see e.g. Hesse, 1997; Lippert
et al., 2001; Nemec, 2009). Altogether, three general phases are manifest with regard
to the content and drivers of administrative change.

First, the initial phase of transformation (starting usually at the end of the 1980s
or the beginning of the 1990s) was characterized by a radical break with the old legal,
political, social and economic orders and the early formation of new structures. When
stability increased, a more systematic approach both to economic and institutional
reforms became possible. As Hesse (1997) has convincingly argued, in the initial
years of transition, public-sector reform was guided less by an assessment of the new
requirements associated with political and economic change than by the intention to
overcome the legacy of socialism. The demise of the communist system constituted a
massive de-institutionalization of political and economic spheres (Zubek and Goetz,
2010). Especially in the former Soviet states, the question was not so much about
reforming the states, but building them up as the structures inherited from commu-
nism were both inadequate and inappropriate.

Furthermore, the communist system of ruling left a legacy of institutionally frag-
mented administration. As Goetz and Wollmann (2001, p. 867) describe the situation
in four Central European states (Bulgaria, the Czech Republic, Hungary and Poland):

The central executives consisted of a very high number of ministries, including
the sectoral ministries and other central agencies. Many of the latter were
formally attached to the Office of the Council of Ministers, but operated largely
autonomously. The central state apparatus was institutionally fragmented and
specialized units proliferated.

The same has been emphasized by Beblavý (2002), who shows that the communist
systems bestowed to their democratic heirs highly specialized administrations with
a big number of individual organizations that were often based on a single-purpose
agency principle. At the same time, these organizations were not part of a centralized,
horizontally and vertically well-integrated hierarchy, as is often presumed, but
of an amorphous system that endured thanks to accommodating both the Party’s
organizational and its members’ and administrators’ individual interests (Beblavý,
2002).

In the first phase of transition, the administrative changes can be expected to be
driven most of all by the strategies of political elites with an aim to overcome the
legacy of the previous system. In that, they were considerably assisted by different
international donors who rushed in with financial help and consultancy right after
the collapse of the communist regimes (see e.g. Randma-Liiv, 2005).

Secondly, with their request to join the European Union, CEE countries entered
into a new period of development characterized by increasing adaptational pressures

from the EU. The pursuit of the EU membership is usually bound with the notion
of ‘conditionality’ (see e.g. Sedelmeier, 2008). Conditionality reflects the presump-
tion that the CEE candidate states had to demonstrate administrative capacity and
the ability to effectively apply the ‘acquis communautaire’ before accordance of full
membership. Conditionality allowed a considerable intervention of the EU in the
administrative development of the candidate states. There were several mechanisms
for that – besides gate-keeping also the provision of legislative and institutional tem-
plates, technical assistance, benchmarking and monitoring, advice and twinning
(Grabbe, 2003). However, it should also be noted that there were limitations to the
potential impact of these mechanisms, too. These were related to the ‘aspects of
uncertainty’ involved in the process (see Grabbe, 2001, 2003). Among others, there
were no EU-wide rules or models of public administration, and the influence of the
EU on the development of candidates’ governance patterns was limited by its own
diffusion, partly owing to the diversity of its existent member states. Nevertheless,
as the accession coincided with the general administrative reform and the burden
of adopting the acquis was significant, there are good reasons to expect the process
to have transformative power (Goetz, 2001; Grabbe, 2001). Not only because there
was a considerable ‘misfit’ between the EU expectations and candidates’ administra-
tive institutions (Börzel and Risse, 2003), but also because there were political and
administrative elites present in CEE motivated to ‘restore’ their country’s place in
Europe and to adapt to the EU-level pressures. Drechsler (2005, p. 100) has even
argued that the reforms geared to the increase of ‘administrative capacity’ have been
primarily EU-driven in CEE.

Third, with joining the EU (in 2004 for most of them), the international adaptive
pressures resumed, and CEE states found themselves in a new situation where they
were on their own in deciding on the further development of their administrative
systems. By that time, it should be possible to talk about CEE countries as ‘normal
democracies’. Structural changes of this post-accession time can be expected to be
born from a complex interplay between political strategies, historical-cultural convic-
tions and environmental pressures without any of them having such a defining role
as they did in the previous two phases. Nevertheless, this last phase of development
has seen the arrival of the global financial crisis that has put new and intensive pres-
sure on governments to change, either for economic reasons in order to cut the costs
of governing or for political reasons to change the economic policies that have been
seen to contribute to the crisis. However, the reactions to the crisis can be presumed
to be highly context-specific, and there is no one template for these reforms (Peters
et al., 2011). In the international environment, this last phase has also seen the re-
newed emphasis of coordination and ‘whole-of-government’ initiatives mentioned
above. Among other things, this has meant the re-strengthening of the centres of
government (both political and administrative) for building coherence in policies
and their implementation (Bouckaert et al., 2010, p. 19). Considering that the coor-
dinative capacities of the centres of government were generally weak in CEE (Goetz

and Margetts, 1999), the latter shift in the international rhethoric could be expected
also to reverberate in the CEE context.

3. The case of Estonian public administration

3.1. Description of the administrative system

Estonia is a small country with an area of 45,227 km² and a population of 1.34
million. In 2009, the Estonian public sector engaged 26.6% of its employed work-
force (Statistics Estonia, available at www.stat.ee, accessed on January 11, 2010).
Around half of the public-sector employees (51%, 72,410 people) were working in
its state institutions and the rest in 227 local governments (Rahandusministeerium,
2010). The workforce of eleven Estonian ministries counted 2,448 employees (civil
servants and support staff together), i.e. with the exception of the Ministry of Foreign
Affairs, which constitutes one large unitary structure with its foreign representations,
there were 200 or less people working in most of the individual ministries. Execu-
tive government institutions covered by the civil service employed just fewer than
20,000 employees all together. Civil servants make up around 91% of the workforce
of the central government institutions. The remaining 9% are technical support staff
employed under labor law (Rahandusministeerium, 2010).The small size of Estonia
was reflected in the size of its state structure.

A central trait of the Estonian administrative system is its reliance on ministerial
responsibility. Although ministries are small, they represent strong administrative
actors that have considerable leverage over the issues belonging to their areas of gov-
ernance. Other coordinating centers in the system (the Government Office and the
Prime Minister’s Office, the Ministry of Finance) are equipped with restricted coor-
dinating powers and, in addition, often constrained by limited resources. The role of
the ministries is mostly confined to policy formulation while the implementation of
the policies is carried out by various agencies under their supervision. In accordance
with the ministerial responsibility, all public organizations are more or less directly
subordinated to specific ministries, and their communication with the Cabinet goes
through the parent departments.

Consequently, it can be said that the Estonian administrative structure is consi-
derably specialized both in vertical and horizontal terms. Agencies play an important
role in the Estonian state. They employ the vast majority of the public-sector employees
and spend most of the state budget. As Estonia is historically strongly rooted in
continental European legal thinking (with a considerable German influence), its public
agencies are usually also differentiated and categorized by their legal status. Four
types of agencies can be identified – (1) government organizations, (2) state agencies,
(3) public institutions, and (4) private law bodies, with a central role for the state
foundations. The first two of these can be classified as semi-autonomous bodies
without legal independence, public institutions are legally independent organizations
with managerial autonomy, and foundations fall into the category of private law-based
not-for-profit organizations established on behalf of the government (van Thiel and
CRIPO team, 2009). See Table 1 for an overview.

Table 1: Organization of Estonian public administration 2010

Type of
organization Number¹ Legal status

Employment
relationships Staff/share² List/examples

G
ov

er
nm

en
t i

ns
tit

ut
io

Ministries 11 No legal personality Civil service 2,448/3.4%

Education and Research, Justice,
Defence, the Environment,
Culture, Economic Affairs and
Communications, Agriculture,
Finance, Internal Affairs, Social
Affairs, Foreign Affairs

Government
organizations
(boards,
inspectorates)

27 No legal personality Civil service 10,438/14.4%

Defence Resources Agency, Data
Protection Inspectorate, National
Heritage Board, Consumer
Protection Board, Civil Aviation
Administration, Veterinary and Food
Board, Police and Border Guard
Board, Language Inspectorate

County
governments 15

No legal
personality Civil service 608/0.8%

Harju, Hiiu, Ida-Viru, Jõgeva, Järva,
Lääne, Lääne-Viru, Põlva, Pärnu,
Rapla, Saare, Tartu, Valga, Viljandi,
Võru

Other
government
institutions

9 No legal personality Civil service 6,406/8.8%

State Chancellery, Estonian National
Archives, Prosecutor’s Offi ce,
Estonian Defence Forces, prisons
(5 units)

State agencies 150 No legal personality Labor law 8,672/12%

Estonian Children’s Literature
Centre, Räpina Gardening School,
Pärnumaa Centre for Vocational
Education, Estonian Literary
Museum, Agricultural Research
Centre, Veterinary and Food
Laboratory, Haapsalu Orphanage

Public institutions 21 Legal persons, public law Labor law 10,257/14.2%

Health Insurance Fund,
Unemployment Insurance Fund,
Defence League, Auditing Board,
Public Broadcasting, National
Opera, National Library, Academy of
Sciences, public universities (6)

Foundations 66 Legal persons, private law Labor law 9,547/13.2%

Environmental Investment Center,
Estonian Film Foundation, Estonian
Science Foundation, Enterprise
Estonia, North Estonia Medical
Center, Russian Theatre

¹ Sources: Ministry of Finance; Register of State and Local Government Organizations, Ministry of Finance, available
at http://register.fi n.ee/register/index.php, accessed on December 30, 2010.
² Staff: total number of employees on December 31, 2009; in government institutions both civil servants and support
staff are included. Share: % of total workforce employed by the state institutions (72,410, including judiciary and
legislative branch). Source: Rahandusministeerium 2010.

First, government organizations are agencies that are financed from the state
budget, operate under the direct supervision of ministries and do not have a legal
personality of their own. Together with ministries, county governments and a few
other organizations, they form the group of ‘government institutions’. According

to the Government of the Republic Act (GRA), their main function is to exercise
executive power – to perform state supervision and to apply the state’s power of
enforcement. Most of the government organizations have regulatory tasks, both in
the fields of economic and social regulation. A list of these agencies is provided in
the GRA, in which also two specific types of organizations are described – boards
(ametid) and inspectorates (inspektsioonid). The latter are supposed to have more
limited tasks, concentrating on regulation and law enforcement, whereas boards can
also have a role in policy elaboration. Ministries with their subordinate government
organizations form a well-defined core of public administration in Estonia that is
critical from the perspective of policy-making and using the state’s power of execution.
The size of government organizations varies considerably (from 17 to 1,800 officials
and an exceptional 7,000 in the Police and Border Guard Board), and they are often
considerably larger than their parent departments. The government organizations
are the only type of agencies in Estonia covered by civil-service legislation. As the
government organizations operate closest to the ministries, their autonomy is restricted
more than is true for other types of agencies. The policy autonomy of government
organizations is first of all determined by the legislation regulating their field of
functioning. In some cases, there is a very high policy autonomy prescribed by law,
especially for the economic regulators (e.g. Competition Board).

Second, state agencies (with the full name of ‘state agencies under supervision
of government institutions’) are financed from the state budget, but their main
function is not to exercise public authority (GRA). These agencies are basically policy-
implementation organizations that serve government institutions in the fields of
culture, education, research and others. Except for eleven social-service units (mostly
orphanages) that are supervised by the county governments, all state agencies report
directly to the ministries. Although the scale of activities in this group is rather wide,
there are some tasks that dominate; there are 33 museums, 69 educational institutions
(secondary schools, vocational schools, institutions for pupils with disabilities etc.),
several research institutes and a number of agencies providing support services to the
ministries (IT, accounting). State agencies form a very mixed group, and there is no
common management structure prescribed. The autonomy of the state agencies can
vary quite a lot depending on their task; there is more independence for some (e.g.
schools) and less for others that operate closer to the parent ministries.

Third, public institutions are public organizations created by law (i.e. parliamentary
decision) to serve public interests. Issues related to their tasks, financing and
functioning are normally addressed on a case-by-case basis. Several institutions that
have traditionally possessed considerable autonomy (e.g. public universities) or whose
profession presumes the right to self-government (e.g. the Estonian Bar Association,
the Estonian Chamber of Bailiffs and Trustees in Bankruptcy) belong to this category.
Besides these, four public foundations managing the assets of a specific purpose (e.g.
Health Insurance Fund, Unemployment Insurance Fund) also have the status of public
institutions. In accordance with the diverse nature of this type of agencies, their

steering and supervision varies considerably and is prescribed by the individual case
laws. However, this category includes organizations that have traditionally enjoyed
high autonomy.

Fourth, the state can establish or have shares in three types of private law bodies:
enterprises, not-for-profit associations and foundations. The last-mentioned have
an important role to play in the Estonian public administration. Foundations are
not-for-profit entities whose purpose is ‘to administer and use assets to achieve the
objectives specified in their articles of association’ (Foundations Act). Of the 66
foundations established by the state, 45 are operating under ministry supervision.
Besides a few theaters and a couple of small research institutes and several medical
institutions, there are a number of influential bodies in this group that the state uses to
channel EU structural support to the Estonian economy, infrastructure, environment
and higher education (e.g. Enterprise Estonia, Environmental Investment Center,
Foundation Archimedes). In 2008, they managed 668 million EUR in total assets.
Foundations have their basis in private law. Differently from the other agencies, they
are treated as a distinctive group and annually reviewed by the Ministry of Finance,
which is responsible for administering the state’s assets. Foundations’ management
structure is prescribed in law; they have a supervisory board and a chief executive
or a management board appointed by the supervisory board.

The four types of agencies described above – government organizations, state
agencies, public institutions and foundations – are not evenly distributed between
different policy areas and ministries. The most populous field of governance falls to the
Estonian Ministry of Education and Research; the high number of state schools make
up for more than one third of all agencies (91 all together). The second largest policy
field when it comes to agencification is culture, because of the high number of state
agencies (mostly museums) and a considerable number of different foundations (60
agencies all together). Together, the fields of education and culture oversee almost two
thirds of all Estonian agencies. In other areas of governance, the number of agencies
is considerably smaller. For example, the ministry that by itself spent 45% of the
whole Estonian state budget in 2010 – the Ministry of Social Affairs – supervises 17
agencies. Nevertheless, with a few exceptions, in most policy fields, there are agencies
from all four legal types.

3.2. Functioning of the system

As already argued above, Estonia operates a decentralized administrative system
where the responsibility for public policies and programmes lies with individual
ministries, and such an arrangement is also supported by budgetary and strategic
planning frameworks. However, the ministries are rather small and in everyday
work rely very much on their subordinate agencies, where most of the professional
knowledge is located. Due to the constraints on resources (money, people, expertise),
the ministries’ capacity to supervise and steer their subordinate agencies’ daily
functioning is limited. From the ministries’ point of view, most mechanisms for steering

the performance of subordinate organizations are managerial ones; the annual budget
of government organizations and state agencies is negotiated for and determined by
the parent ministry, strategic workplans are coordinated by the ministries as well as
the management of support functions. The general framework of vertical coordination
relies strongly on ex-ante control mechanisms. Regardless of the investments made
into developing the strategic planning, ex-post control tools are often used as an
ad-hoc reaction to specific problems. Due to the complexity of the issues handled
by the agencies (especially government organizations), their frequent monopoly of
expert knowledge and limited resources of the ministries, the influence of agencies
on policies can be very high. For example, in terms of vertical specialization, there
are a number of organizations in operation with specific tasks allocated to them, but
the mechanisms for vertical coordination are limited.

In terms of horizontal coordination, problems due to the segmented system of public
administration have become more and more evident. Most of all, these are related to
the decentralized arrangement of policy design and implementation. Coordinating
centers in the system are equipped with restricted coordinating powers and, in
addition, often constrained by limited resources. The Government Office is mostly a
technical support unit to the Cabinet (although hosting units for EU coordination and
strategic planning), and the Prime Minister’s Office consists of a handful of people.
The strongest mechanisms of coordination in the system belong to the Ministry of
Finance, which is responsible for the budgetary process. Such a decentralized system
has effectively reproduced itself and has been reluctant in according coordinating
powers to some central units. Horizontal coordination mechanisms that have been
built into the system (e.g. consultation of draft regulations, management of EU affairs)
are based on network-type cooperation and in that way reinforce the central role of
ministries in deciding over the policies falling to their areas of governance.

Decentralized decision-making also applies to the administrative policy. The
limited central coordination of structural development has resulted in heterogeneity
of organizational solutions, often not comparable or compatible with each other.
For example, one of the latest issues taken up by the Estonian National Audit
Office (Riigikontroll, 2010) addressed the regional representations of the government
organizations, whose reform has been largely un-coordinated and has resulted in
different definitions of the ‘regions’ (combinations of the counties) and region
centers. Similar heterogeneity is also manifest among the private law bodies of the
state. The Ministry of Finance has attempted to use its coordinating power to foster
the steering of the foundations according to the performance-management principles.
Individual ministries are expected to define specific goals that the foundations
operating in their areas of governance have to pursue, to evaluate their achievement
on a yearly basis as well as give their opinion in every annual report on the necessity
of the foundations to be continued. However, the success of this attempt has been
dependent on the line ministries’ capacity and willingness to do it and has varied
to a great extent.

Consequently, there is a call for better horizontal integration of policy sectors
and for a whole-of-government approach. As has been recently pointed out by OECD
(2011), the Estonian administrative system has demonstrated ability to work in a
‘joined-up fashion’. However, it has shined more in times of crisis or when a more
immediate policy response is needed than in ‘business-as-usual’ activities (OECD,
2011, p. 26). Furthermore, the cooperation on these occasions has relied very much
on personal contacts and informal networks. In order to transform the joined-up
way of working into an every-day mode of operation, there is the need to make it
part of the administrative culture (OECD, 2011). However, it takes the issues back
to the administrative policy. The whole-of-government approach presumes that
there are some shared values in the system, some standardization and a shared
administrative culture. As Peters (1998, pp. 298-299) has pointed out, shared values
and organizational logics support coordination and make it more likely to appear
without using authority or disrupting organizational routines. Nevertheless, in Estonia,
also the civil-service system is decentralized, and there are few mechanisms that bind
the cultures of different organizations together (e.g. the civil-service code of ethics
could be mentioned here). The initiatives of creating more unity within the system
have met with institutional resistance and have moved on only very slowly. So, the
issues related to the coordination of sectoral policies cannot be solved without dealing
also with the management of the administrative organization itself.

To conclude, Estonia operates an administrative system where the vertical and
horizontal specialization has helped to enhance the micro-level policy capacity of
single organizations, both ministries and their subordinate agencies. However, this
specialization has not been balanced with coordination mechanisms that would
foster the macro-level policy capacity of the government as a whole. Why such a
decentralized administrative structure has evolved in Estonia and what have been
the factors behind its development will be analyzed in the next section.

3.3. Development of the system

The research undertaken for analyzing the institutional development of the Estonian
administrative system shows that such a decentralized system has emerged and taken
root in a combination of different factors. Over the two decades of development, specific
factors have combined in favor of specialization over coordination. The three general
phases of CEE development described above are also visible in the development of the
Estonian administrative structure (see also Lauristin and Vihalemm, 1997; Tõnnisson
and Randma-Liiv, 2009; Viks and Randma-Liiv, 2005). In different phases, specific
dominating drivers and motives for change appear.

First of all, it is important to look at the basis from which the structural reforms
started. Estonia re-gained independence formally in August 1991. However, a major
reform of administrative structure was already initiated at the end of 1989 as a part of
aspirations to gain more independence within the Soviet Union. With the December
1989 Act on the government of the Soviet Republic of Estonia, a new ministry-agency

structure was created. The law stated that there were 17 ministries, a State Chancellery
and state boards and inspectorates under the steering of the government. To arrive at
such a structure, in the first half of 1990, two existing ministries were abolished and
ten ministries were established based on the previously existing state committees.
Many existing units were given new labels of ‘boards’ or ‘inspectorates’. The official
restoration of independence in the following year led to a massive restructuring of the
public administration. However, these reforms were already building on the changes
initiated in 1990.

Structure-wise, the early reformers faced two central problems. First, the system
inherited from the Soviet Republic was highly fragmented and consisted of a
large number of executive organizations with no clear system of organization and
subordination. Second, several core functions of the state needed to be built from
scratch (foreign affairs, defence) or reorganized completely (economic affairs). For
example, at the beginning of 1990, there were only 12 people working at the Ministry
of Foreign Affairs (Välisministeerium, 2002). Furthermore, the division of functions
between the local, regional and state levels had to be decided again. The regional level
ceased to exist as a tier of self-government, and several of its functions were given to
the central government agencies (see Sepp and Veemaa, 2010 for a further discussion).

With respect to the organization of the executive branch, very basic questions came
out from the discussions of that time – the debate revolved very much around optimal
number and task portfolios of ministries and government organizations, as well as the
subordination relationships between them (Riigikogu, 1992a; 1992b; 1992c). Problems
were mostly seen to lie with various government agencies that, in spite of being placed
in specific areas of governance, functioned rather independently and were formally
subordinated to the Cabinet, not individual ministers. At the beginning of the 1990s,
both ministries and government organizations were reorganized actively, most of all
through mergers and different kinds of successions.

In this first phase of transition, critical decisions for the further administrative
development were taken. For this article, reliance on a decentralized arrangement
of policy design and implementation is of prime interest. It becomes clear from the
research that the foundations to a segmented administrative system were already laid
down in the initial stage of transition and the further development has followed this
path. Reasons for that can be found in the strategies of political leaders, the historical-
cultural context as well as environmental pressures. The next sections discuss how
they have combined in time.

To begin with, there were several reasons for the choice of a decentralized
system and reliance on the responsibility of individual ministries at the outset of the
administrative reforms. First, in a situation where the communist party as a coordinating
center had disappeared and a new state structure had been established formally
with the adoption of the democratic constitution in June 1992, the whole system of
governance was in its essence de-institutionalized. In such a context, the inception
of new democratic coordination mechanisms and decision-making procedures was

necessary but extremely complicated. It was difficult to decide what was needed.
Furthermore, the high uncertainty, enormous workload and intensive time pressure
of the early transition made the decentralized problem-solving approach seem like
the only working solution. There was no time for coordination and consultation. Last
but not least, the aim of overthrowing the legacy of centralized and overwhelming
soviet public administration meant that the political elite were very cautious towards
all manifestations of centralization. Consequently, a decentralized arrangement was
deemed a proper solution.

By the time Estonia started to move towards the membership of the European
Union (the application was submitted in November 1995), initial stability had been
achieved and the basic ministry-agency structure was agreed on. Nevertheless,
‘simplifying’ and ‘downsizing’ the government machinery still stood high on the
to-do list of the Government (Explanatory note to the draft act on the Government
of the Republic, 1995), and, most of all, it was supposed to appear in the form of
reducing the number of government organizations, as these were perceived to lead
to a doubling of the number of centers of executive power next to the ministries.
The aim was to reduce the vertical specialization of the administrative structure.
On January 1, 1996, the new Government of the Republic Act came into force that
prescribed a decentralized administrative system with strong ministries responsible
for specific areas of governance. Although ministries were accorded more power for
steering agencies in their areas of governance, the strengthening of the horizontal
coordination mechanisms was much more modest and the attribution of coordinating
power to some central units was avoided. The decentralized system had already
institutionalized enough in order to reproduce itself.

The latter was also reflected in the organization of the Estonian national accession
process, where the issues were divided between ministries according to their mandates
and the coordination was based on the network type of cooperation instruments. Such
a solution strengthened again the position of individual ministries. Furthermore, the
sectoral approach of the EU itself cannot be underestimated. On the one hand, the EU’s
competence in different sectors varies, so do the legislative procedures and decision
rules applied (Kassim, 2003, p. 87). On the other, the EU’s reliance on a sectoral
approach in evaluating and supporting administrative development in CEE has been
noted (see e.g. Jacobs, 2004, p. 322; Dimitrova, 2002, p. 179). As a consequence, the
Estonian decentralized administrative structure was further institutionalized in the
process of the EU accession. Nevertheless, it is important to note that at the same
time, it was also increasingly discerned in Estonia that its public administration
needs better mechanisms for coordination. Therefore, although accession to the EU
strengthened the decentralized architecture of the Estonian state, it also helped to
institutionalize coordination that is needed in a functioning democratic state. Last
but not least, due to the EU pressure, the previous policy of terminating government
organizations (mostly through mergers to the parent ministries) was abolished and
reversed in order to accommodate regulatory responsibilities in accordance with

the EU rules. Also several new agencies were created in the form of private-law
foundations. The accession process also increased the vertical specialization of the
structure potentially creating new problems of coordination (see also Suurna and
Kattel, 2010, for a more general CEE discussion).

Such a decentralized administrative system as is present in Estonia could not develop
if it was not supported by the historical-cultural context or, in other words, prevailing
values within the organization and its environment. The initial aim to overcome the
legacy of a centralized Soviet system was already mentioned. Nevertheless, there is
another aspect that deserves attention. The post-communist structural reorganization
started at a time in history when the international environment was dominated by neo-
liberal definitions of problems and solutions for democratic governing. Bruszt (2002)
has brought out that in the initial years of economic reforms in the CEE countries,
the policies were basically shaped by the ‘Washington consensus’, and the building
up of regulative state capacities began long after the introduction of liberalizing
measures. In the case of Estonia, the seed of neo-liberalism fell on fertile ground and
took strong roots. Its reign has been supported by the political structure with two
main parties carrying the worldview – Pro Patria Union and the Reform Party – firmly
institutionalized in the political landscape and with a long record of being in power.
In their comparative analysis of administrative traditions of the three Baltic States in
1993 and 2001-2002, Nørgaard and Winding (2005) concluded that out of the three,
Estonia was leaning the most towards the contractual state epitomized by the Anglo-
Saxon countries. Furthermore, Lauristin et al. (2005, p. 6) claim that also the Estonian
media have been oriented towards the liberal market economy and individualistic
values. Drechsler (2000, p. 269) finds that the ‘somewhat extreme libertarianism’
to be found in Estonia is an ‘unsurprising reaction against the soviet past and finds
resonance in Estonian’s predisposition to individualism and to a historical distrust
of the state’.

Although this neo-liberal mindset of the politico-administrative elite has also
meant a high receptiveness to the ideas of NPM (Drechsler (2004, p. 391) even
claims that Estonia is ‘one of the CEE countries closest to NPM models’), with regard
to the administrative structure the impact is not so straightforward. The reforms
undertaken can rather be summarized as down-sizing and trimming of the system
with agencification appearing mostly as a response to the pressures of acceding to the
EU. Nevertheless, this dominating neo-liberal worldview has had a strong influence
on the way the state and its development have been perceived in Estonia. The elite’s
belief in the ‘lean’ state and the narrow focus on micro-level efficiency have led to the
reluctance towards investing into coordinating functions (often discerned as ‘doubling’
the work) and administrative development more generally. As resumed recently by
OECD (2011), ‘the apparent ambivalence of politicians and administrative leaders
regarding reforms seems to reveal a lack of shared understanding about the role of
the public administration for ensuring Estonia’s future’.

4. Conclusion

Estonia operates a decentralized administrative system. A central trait of it is its
reliance on ministerial responsibility. Such a decentralized arrangement has shown
both considerable strengths and considerable weaknesses. On the one hand, there is
clear accountability for certain policy fields, accumulation of professional knowledge
and less need to spend resources on coordination. On the other hand, problems related
to a segmented administrative system have become more and more evident – there
are difficulties related to solving problems that engage several areas of governance,
policies are not coherent, and solutions to the ‘wicked issues’ get postponed.

The aim of this article was to find out how and why such a decentralized administrative
structure has formed in Estonia during the 20 years of regained independence and
transition to democracy. The applied approach to the organizational change can be
defined as ‘transformative’ – it was expected that changes in the structure of the public
sector were born in a complex interplay between conscious and planned strategies of
political and administrative leaders, cultural-historical features and reform pressures
originating from the external context of organizations. The goal was to explain how
they have combined in the case of Estonian administrative development.

It was found out that over the two decades of development, specific factors
have combined in favor of specialization over coordination. This can be summed
up in two points. First, the aim of overthrowing the legacy of centralized soviet
public administration by introducing considerable decentralization, the following
institutionalization of the decentralized system in combination with the sectoral
approach of the EU and the organization of the Estonian accession process in a way of
dividing the issues between ministries according to their mandate have contributed to
the development of a public administration with strong ministries having considerable
leverage over the issues falling to their areas of governance. Second, the neo-liberal
worldview of Estonia’s politico-administrative elite and its inclination towards a lean
state and down-sizing as a measure to promote performance have led to the reluctance
towards investing into coordinating functions and administrative development more
generally. Nevetheless, understanding the need for coordination has been accumulating
in time, and with ‘whole-of-government’ initiatives being the international vogue, there
is growing attention to it also in Estonia.

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