Market Mechanisms in the Public Service - Coursework Example

Market mechanisms in the public service Name: Universty Introduction Market maechanism in the context of this paper refers to the application of institutions and regulations of a market economy in provision of services in the public sector. The public sector has substantially embraced market-oriented arrangements such as outsourcing, private service provision and tendering. Many services provided by the public sector are increasingly subject to competition amongst providers, and by effectively separatimg funding from provision of services, government institutions have succeeded in retaining public service properties while benefiting from market-like mechanisms (Groot & Budding, 2004). Market mechanisms in the public service According to Evenett and Hoekman (2004), the public service has effectively employed market mechanisms in provision of services in several ways. First, market mechanisms have been used to significantly enhance productivity and efficiency in service provision. To this end, the quality of services provided has significantly improved, while at the same time lowering the cost of public service operations. Secondly, public service providers are more responsive to the needs and prefernces of consumers, thereby improving overall public welfare. Lastly, the public sector is now able to efficiently manage its budget and this is attributed to increased knowledge and application of market economy principles regarding cost management and efficient allocation of resources. Market mechanisms as employed in public service can be categorised into two distinct groups: Privatisation of service provision Consumer Choice and Provider Competition Privatisation of services involves partnerships between the public and prive sectors in delivery of services through market-like mechanisms such as outsourcing and tendering. Competition and improved choice refers to the extend to chich public sectors are in competition with each other in provision of services and market access, while providing consumers the opportunity to choose from the services rendered by differend public service providers. Privatisation of service provision The public sector in partnership with the private sector has succcesfully employed market mechaisms in areas such as tendering and outsourcing. Below is an assessment of how the public sector is increasingly relying on privite entities and contracting to enhance the quality of services provided to the public. The public sector is drifting from internal production of services to outsourcing the serices from non-governmental organisations, private companies, foundations, cooperatives and other consumer associations. Reserch into this practice indicates that privatisation of service provision significantly increases efficiency and productivity, though it is acknowledged that the benefits are more evident in the short term. Apprently, in the long term, competition amongst service providers ends up compromising the quality of services rendered (Groot & Budding, 2004). Nonetheless, private service providers have the advantage of more flexibility in production processes which essentiallly is attributed to the need to sustain a competitivce edge over their rivals. Competition among private service providers essentially works to the advantage of the public sector as it leads to better quality services and more productivity. Private providers are better placed to provide certain services as they exemplify more flexibility in organisational processes and regulations. They also lay more empasis on better labour relations and invest more in recruiting and retaining a more quality workforce. Private providers are also considered more aggressive in innovation and can more easily customise services to match customer expectations. However, in consideration of the fact that private companies’ primary objective is to make profit, it has been a concern of the public that this could compromise the quality of services provided, and so permision to access the market is only granted to private non-profit entities (Kahn, 1998). It should however, be noted that outsourcing of services from private providers is more effective in technnical services such as waste collection and transport, rather than social services such as sports and recreation(Cambini & Fillipini, 2003). Other than private providers being used by the public sector to provide some key services to the public, there are other ways that it employs to efficiently and cost effictively deliver the services. These include partnerships with the private sector, tendering and outsourcing. Tenderimg is widely regarded as a better mechanism to enhance the quality of services provided to the public. Tendering of service provision essentially makes it posisible to improve the quality of services, as organisations compete in offering the best service so as to have an edge in winnning tenders. Tendering has been most effective in providing transport services especially in major cities. Since the mid-‘90s, the private sector has continously reinvented its public policy on transportation, with more emphasis on privatisation of the function. Tendering of transport has be come a common practice in government departments, and the transport market has subsequently been expanded to incorporate a larger number of players. The result has been increased competition thereby enhancing the quality of servis rendered, and subsequent increase in public service productivity (Hood, 1991). Government departments have also realised substantial cost reductions and enhanced service delivery through outsourcing. Outsourcing simply refers to the process of transfering support functions to external organisations. The difference between tendering and outsourcing is that with tendering, the core service remains the obligation of the public sector, as opposed to outsourcing where an external entity is given the mandate to execute the function (Kahn, 1998). From previous research undertaken in various public service departments, the support functions that were commmonly outsourced included cleaning, catering, maintanance, secuity, and information technology services. Essentially government departments have the duty of assessing the functions that should be outsourced, and this is subject to cost and resource considerations. Core services such as provision of health care and education are less likely to be outsourced because of their significance to public welfare and the amount of resources involved in their provision. Infrastructural development is a critical component of economic and social development of the country at large. Provision of this magnitude of service often demands the government to work in partnership with other stakeholders in a process commonly refered to as public- private partnership. In such cases, a private entity is engaged to undertake some of the sections of the infrasture projects, such as in designing, construction, operation or funding. Looney (2008) argues that public-private partnerships have emerged as a signicant tool, which the government uses to manage its budget. The government is able to stretch its resource allocation for a longer period and in more functions thereby minimising strain on the economy, while optimizing provision of public services. The challenge that the government faces is striking a balance between the value of projects, especially long-term projects, and the risk involved in undertaking such costly projects. The common practice within the government is to engage internationaly reknowned companies when undertaking major projects. Consumer Choice and Provider Competition The second category of market-like mechanisms that are used in the prive sector is consumer choice and competition among service providers. Analysis of these market mechanisms will begin with a precise defination of the terms, followed by an assessment of their significance in enabling the public sector to effectively and efficiently deliver valuable service to the public. Consumer choice Consumer choice refers to the right users have in selecting from many service providers which one best meets their needs and preferences. A significant benefit of consumer choice is that it enhances the responsivenesss of service providers to the unique preferences of customers. Services providers that provide a wide range of varied attributes include insitutions such as hospitals, schools, and intertainment places and sports facilities. By consumers experiencing and comparing the quality and diversity of services provided by sevceral service providers, competition among the services providers to curve out a market position will have result in better quality services and enhanced service delivery. The scenario is however reversed if the service providers have a choice on who shall use the services they provide. Consumer preference in this case may determine accessibility to certain services. This is well exemplified in the leisure and intertainment industry where the service providers have the discretion of filtering the kind and age of people that can access their services. However, user choice is also depended on other external factors such as the distance a user has to travel to access the services. Consumer choice is hence a relative market mechanism, as services must be within reasonable distance from the consumer. Nonetheless, the density of population in a region influences the spread of service providers in a region. In the event the population is sperse, inevitably service providers will be fewer. According to Kahn (1998), consumer choice in such a case is depended on the consumer’s ability and willingness to invest more in transport. User choice is commonly exemplified in hospitals and childcare facilities where users make decisions based on their ability to pay for the service and the quality of services rendered by such insititutions. Consumer choice is however very restricted in both primary and secondary schools and this is attributed to the fact that parents would certainly prefer their children to attend schools that are closer to where they reside. Provider competition and market access For consumers to have access to various alternatives from which to choose from there must be a market environment that permits free entry of service providers. An increase in the number of service provides consequently results in stiffer competition. More competition works to the advantage of consumers as providers become more innovative and develop superior quality servives. Both service providers and consumers are disadvantaged when market entry is restricted by either legislation or processes such as tendering, where opportunities for business are limited to a smaller network of preferred service providers (Ho, Li-Hsing & Chen-Chia Chuang, 2006). The government is to a large extend responsible for market entry disparities through legislations that restrict private service providers from accessing markets that deal in provision of core services, such as schools and hospitals. Users in this case have fewer choices, and chances are that the quality of services provided will easily be compromised. The public service sector has been known to have the advantage of being funded by the government, and therefore in better position to provide cheaper services. Private Service providers have nontheless responded by enhansing their responsivenesss to unique customer needs and preferences. This is especiallly exemplified in healthcare provision, where private hospitals are prefered and known to provide superior helthcare services. A balanced funding arrangement from the government for both public and private entities would certainly increase competition, resulting in better quality services and more choices for consumers. b). Impact of market mechanisms in provision of public service Comprehensive research that has been done on the impact of market-like mechanisms in provision of public service indicates that such mechanisms not only enhance effeciency in service provision, they laso create a competitive market-like environment which subsequently leads to better quality services and increased user choice. However, this does not happen without significant trade-offs in public service provision. The use of market mechanisms in the public sector can have negative effects on the primary objective of the public sector, which is to faciliate access of the public to affordable public services. Market mechanisms have proved to create segementation and imbalance in distribution of public services. This has resulted from factors such as undesirable government legislations, which restrict free entry and participation in public service provision. Consumer choice is to a large extend restricted when service providers are given more discretion to determnine the type of consumers that can access their services. When this trend is extended to public service provision, it negates the noble objective of providing services to the public with fairness and indiscrimination. The government in its employment of tendering and contracting processes to deliver public servicess has compromised the public’s right to acceess essential services such as affordable transport and a cleaner environment. Leape (2006) says that tendering and privatisation of public services comes with an added cost on the public, and with the disadvantage of uneven distribution of the services. The success that the public sector has achived by employing the abovce categories of market mechanisms can be determined through assessment of various institutional indicators. Insititutional indicators are an assessment of the efficiency and effectiveness with which the public sector has employed the market mechanisms in provision of services. Precisely, the indicators are a description of processes and arrangements meant to positively affect delivery of services to the public (Harrold, 1998). The objective of the public sector is to enhance the efficiency of publice service delivery by developing well-coordinated and consistent market mechanisms. Market mechanisms have been extensively applied in provision of better quality services especially in education, healthcare, social security, economic aspects and in environmental protection. There are other aspects where market mechanisms have been used, such as provision of water and electricity, but this are not discussed since the objective of this study is to assess the significance of market mechanisms in impoving efficiency in cost and resource management in public service (Scott, 2001). There are several issues that have emerged out of this discourse that I should have been aware of. These involve the policy options that central and sub-central governments have in mitigating the adverse effects of market mechanisms in provision of public service. User fee for instance has the undesirable effect of excluding lower income segments from public services. Imposing of user fees in hospitals and outpatient care conflicts with the purpose of universal provision of public services High user fees in provision of transport to the public may lead to some people being excluded from the service. The same situation may arise in tertiary education where high user fees may result in poor students not having access to affordable education. In the event that the freedom that providers have in provision of services is not checked, the providers can effectively filter social groups by imposing costs that are higher than average. Funding systems have proved to be inadequate in dealing with such mechanisms of filtering, resulting in some social groups being denied access to certain services such as education and medical care. Privatisation and tendering of services has the potential of causing a decline in the standards of services provided. In consideration of the standards that providers are required to meet in regard to service coverage, providers could easily withdraw from providing services in some areas or to certain social groups. There are several options that the government can employ to limit the negative impact of market mechanisms, they include: Setting of minimum standards To ensure that the public has unlimited access to public services, both central and sub-central governments are required to set social and geographical standards that provides must meet. Such minimum standards may be in form of prescriptions such as the rights of a settlement to a school in the event that the number of students exceeds a given threshold, or the right to more bus connections. The government can also enforce policies that require providers to accept any user. Such legal provisions may forbid providers from discriminating users in core services such as education, medical care and public transport. Universal access rights that have been enforced in many countries are meant to discourage providers from discriminating against certain social groups. This practice is however not easy to control since selection and screening of users often happens through very informal channels that are not easy to detect. Lowering of fess for the needy Central and sub-central governments can enforce legislation that ensures the fees charged for public services are lowered for users who are in need. People with low income and the elderly are actually charged lower fees in hospitals and nursing homes. The fee that is charged in childcare institutions is based on the income of the parents, while the unemployed and students are offered lower fees by public transport providers. Income support Social policies such as mean-tested income support have been developed by the government to increase household and individual budgets. Direct income support that is offered by the government is meant to assist users to access public services that are highly priced. Conclusion The government, in the interest of the public, must set minimum standards to private service providers. They should be able to meet the established standards for provision of service to the public. This requires the government to be proactive in enacting policies that protect the rights of the public to good quality and affordable services. Such legislation should ensure that service providers do not discriminate potential users, especiallly in provision of core services such as helthcare, education and transport. References Cambini, C and M. Fillipini (2003), “Competitive Tendering and Optimal Size in the Regional Bus Transportation Industry: Examples from Italy”, Annals of Public and Cooperative Economics 74:1 2003, pp. 163-182. Evenett, S.J. & Hoekman, B.M. (2004), "International Cooperation and the Reform of Public Procurement Policies" http://www.evenett.com/working/EvenettHoekmanProcurementCEPRAugust05.pdf Fitzgerald, L. et al. (1991), Performance Measurement in Service Businesses, Chartered Institute of Management Accountants, Cambridge, Ch 1. (Dixson 338.455/P438) Groot, T. And Budding (2004), The Influence of New Public Management Practices on Product Costing and Service Pricing Decisions in Dutch Municipalities, Financial Accountability & Management, Vol. 20(4 Harrold, R.I. (1998), Resources in Education. 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