FINANCIAL MATTERS: Redefining the public sector
Over the long
Easter weekend, I dwelt in the cusp of several dilemmas. There was the
undeniable challenge of the national political choice. But it was with
a lower order problem that I did the greater battle. Riven between, on
one hand, the modern day understanding of the role of the public sector
in an economy, and on the other, a vivid recollection of a
not-too-long-ago past, when all services were provided by the public
sector, I tried to imagine an agenda for the sector’s reform.
The first horn of
this particular dilemma is an argument in favour of a small state. Here
the private sector provides everything within a competitive market
economy. In this context, the state is allowed free rein only in those
areas where a natural monopoly exists, the positive externalities
arising from the provision are too vast to lure private providers, or a
market failure exists.
Otherwise, the
state is most efficient as a regulator of the market: ensuring free
entry and exit, and protecting consumers against price-fixing and
related collusive practices by industry.
The second horn
seemed nostalgic. Or, was it? Add the Tuesday break from work for the
governorship elections, and the whole Easter break was of five days
when electricity from the mains was noticeable by its absence. In the
teeth of the obvious incompetence of PHCN (the yet-to-be-privatised
public monopoly that provides electricity nationwide) it was kind of
difficult persuading my teen daughter that time was when NEPA (that’s
what the monopoly provider used to be called) announced power outages
days in advance; and when the light was turned off as announced and
turned on on cue. A lot less credible in the light of today’s
experiences, is the fact that it was our practice as teens to report
unannounced electricity outages to NEPA; and that having logged the
fault, the service operator would inform that a “fault vehicle” will be
“there” in 30 minutes. Invariably, the service vehicle arrived on
schedule. It was important, growing up, that we knew by heart the
number on the poles that brought light into our homes, and NEPA’s fault
complaints phone lines.
There was therefore
a time when the public sector “delivered”. Now, there may have been
issues with its balance sheet. In other words, the services we enjoyed
in those days may have been provided below the rate at which the market
would ordinarily have cleared the demand for and the supply of such
services (were these to have been left in the hands of private sector
providers). This difference between the rate at which the public sector
provided its services and the putative private sector rate (the
now-famous “subsidy”, which every public policy neophyte would want
removed in today’s thinking) was not without its uses. It would have
helped if all that time these costs were properly captured in the
national accounts and the choices we made happened because we’d
compared their implications for the budget with the intended gains.
Despite the current
narrative, the haemorrhage from such “subsidies” did not lead to the
subsequent incapacitation of the public sector as a service provider.
Indeed, the emergence of millionaire civil servants belies this
possibility. The services failed for less honourable reasons. The point
was reached where public investment in new capacity tailed off, even as
ill-focussed public policy choices drove a phenomenal growth in demand
for these services. As the debate in the US over how to keep public
spending within limits has shown, key parts of the services enjoyed
there is the result of public provision. To some extent, therefore, the
public sector is not as remiss as we want to depict it. Tony Blair,
writing on his tenure as prime minister of the UK, put it most
graphically: “The truth was that the whole distinction between public
and private sector was bogus at all points other than one: a service
you paid for; and one you got free. That point is obviously central –
it defines public service. But it doesn’t define how it is run, managed
and operated. In other words, that point is critical, but at all other
points, the same rules apply for public and private sector alike, and
those points matter enormously.”
