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BS2032 Public Sector Management
5: Public Services and Market
Mechanisms
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
TRADITIONAL MODEL OF PUBLIC SERVICE
PROVISION
• Public provision is more effective than any private
alternative e.g. defence, law and order
• Role of the state is to provide conditions in which
social life and markets may operate
• On moral grounds, services such as health,
education and welfare are regarded as ‘moral’
goods
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
MARKET FAILURE
• Public goods (clean air,health-education-welfare are
largely public goods)
• Increasing returns to scale (telecommunications, utilities)
• Externalities not taken into account e.g. pollution
• Merit goods (e.g. education, health) to which private
markets may restrict access
• Information assymetries i.e. power of professionals
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
THE FAILURE OF THE STATE
• Large bureaucracies doomed to failure
• Wasteful because no incentive to control costs
• ‘Public choice’ theory argue that politicians, bureaucrats
act only in their own self-interest – prestige projects can
proliferate (Concorde, Millennium Dome)
• Large scale bureaucracies produce results that were
unintended (Child Support Agency)
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
The modern economy:
• Infrastructure
• Government and industry
• Demography
• Education
• Health
• Social security
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• Why should ‘public services’ be non-marketable?
• McKevitt(1998),Managing Core Public Services
argues…
• Differential information (e.g. health, law)
• Social interdependence (public health)
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
GOVERNMENT SPENDING
• Keynesian control of the modern economy from 19451970’s
• Government spending as % of GDP: 42% (1996)
• OECD average 46%; Britain ranks approx. 11th/17
industrial societies (Sweden 65%; USA 33%)
• Rigid attempts to control % of GDP (‘rolling back frontiers
of the state’) unsuccessful (43% in 1980, 47% in 1996)
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• The 1970’s watershed…
• ‘Stagflation’
• Corporatism
• Oil crises and disruption to western economies
• Globalisation and rise of the ‘tiger’ economies
• Impact of ICTs
• ‘Winter of discontent’
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• Radical right solutions .. ‘Thatcherism’ [1979-1990]
• Monetarist experiments
• Taxes on consumption, not incomes
• Attack on public expenditure (but huge costs associated
with health, social security,poverty)
• Privatisation programme
• ‘No such thing as society’
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• The Major Years [1990-1997]
• Poll tax replaced after popular discontent
• The ‘Charter’ movement
• Agencification continues
• Market testing of government functions
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• New Labour [1997..]
• Retained conservative spending plans
• Agenda said to be right of Margaret Thatcher’s
first manifesto
• Devolution; Reform of the House of Lords
• The politics of the spin-doctor
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• Modernisation programme
• Policy initiatives in health, education
• A Government for London
• Independence for Bank of England
• Incorporation of European Convention on Human
Rights
BS2032 Public Sector Management
5: Public Services and Market Mechanisms
• What kind of public services do we want ?
• Can we have better quality at lower cost ?
• What room for manoeuvre has any modern
government ?
• What is the role of the market in health ?
education ?
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BS2032 Public Sector Management
5: Public Services and Market Mechanisms
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BS2032 Public Sector Management
5: Public Services and Market Mechanisms