Impact of Privatization on Public Administration

Posted on July 14, 2011 by Vivek Singh

Privatization of Public Administration services

The issue of user fees User Fees as a means of delivering public services can be defined as µContributions to costs by individual users in the form of a charge per unit of service consumed, typically in the form of cash¶ (Reddy and Vandermoortele 1996). The privatisation of basic public services has become a dominant issue in policy discourse in industrialised as well as developing countries. Over the last few years, policies affecting water, electricity, health and education in some countries have generated as much political controversy and social mobilization as taxation, land reform or even trade. The success of such a step will depend on (i) the magnitude of user charges per unit of service provided; and (ii) the responsiveness of service utilization to user charges, often referred to in technical jargon as the price elasticity of utilization. In other cases, while private provision may not yet have been implemented, the price of public services has gone up. In particular, cost-recovering ³user fees´ on public services have been imposed by governments that lack the budget (Or perhaps the political commitment) to deliver universal basic services, especially in health and education. In Colombia, education reforms in the 1990s have forced parents to pay for a wide range of school-related services, including building maintenance, academic materials, phone, water and electricity-even the salaries of janitors and secretaries! While increased user fees are a great burden to those who can pay them, they can be catastrophic for those who cannot. The South Africa report cited a study, conducted by a prestigious research institute that revealed that almost 10 million people had their water service disconnected between 1994 and 2002, primarily as the result of non-payment.

Despite of its benefits. the study¶s findings suggest that user fees may not have an adverse effect on equity of utilization. one might expect user charges to be not so harmful for the objective of raising revenue (since demand will not be affected much by price increases). user fees and the deterioration of public health care and education quality hit the poor hardest. Budget cuts and incentives for private providers to attract better off consumers impose poor quality and limited access upon those without cash in hand. there are some constraints too which can be summarized as: .(Private provision was launched in 1997) There were reports that disconnections in poor rural communities and urban squatter settlements have forced some to turn to contaminated water sources.Promotion of PPP is therefore necessary since its the most preferred mode. public-private partnerships have been extremely successful in developing infrastructure. Finally. In the social services. The deficit can be overcome by ensuring much more private capital investment. In India . the price elasticity of demand for outpatient health care was statistically indistinguishable from zero.PPP as a means of delivering public services is often described as a private business investment where two parties comprising government as well as a private sector undertaking form a partnership. across the economic spectrum. Public-private partnership(PPP) Public±private partnership (PPP) describes a government service or private business venture which is funded and operated through a partnership of government and on and one or more private sector companies. Expert guidance is the only way out for enabling efficiency through subsequent reduction in cost. to the extent that the price elasticity of demand for outpatient care was close to zero at all income levels. The study found that. There are hardly any studies that provide insights into the potential impact of user charges in an Indian setting. causing cholera outbreaks and resulting in hundreds of deaths. The only pertinent study in India is a demand analysis undertaken by Gupta and Dasgupta (2000) who used data from a nationally representative survey carried out by the National Council for Applied Economic Research (NCAER). particularly road assets under the NHAI . If so. The low price elasticity also suggests that price incentives for bringing about efficiency improvements are unlikely to work well because people will not change their utilization much in response to price changes.

Modernization of new airports.Sufficient instruments as well as the ability to undertake long-term equity cannot be provided by the market in the present financial scenario. Under outsourcing the responsibility and financing for the provision of a public service or public good remains within the public sector. financing and decision making responsibility remains located within the public sector.  Outsourcing technique Outsourcing involves the relocation of public sector service inputs to the private sector. All aspects of service provision. active participation of various state projects are essential. in the sense . despite of continued initiatives by States and Central ministries. Various foreign as well as private investments by waving off charges are encouraged. Is outsourcing equivalent to privatisation? Strictly no. So its important to convert such policies into PPP friendly. Framing of standardized contractual documents for laying down the terminologies related to risks.  Lack of ability of private sectors to fit into the risk of investing in diversified projects also needs to be overcome. However. Inconsistency is still visible in the limitations of PPP projects. liabilities and performance standards have been devised. To achieve the desires results. Also financial liability required by infrastructure projects would not be sufficed. Nevertheless. Several initiatives have been undertaken by Government of India to enable a greater PPP framework in order to eradicate the above mentioned constraints.  Most sectors face a lot of hindrance in enabling a regulatory framework as well as a consolidated policy. from capital and technology through to materials and labour can in theory be re-located to the private sector. since ownership. outsourcing can be viewed as privatisation by stealth in two respects.  Lack of credibility of bankable infrastructure projects used for financing the private sector should also be overcome. transmission systems and building power generating plants are some of the avenues which required skilled manpower. Maximizing the return of the stakeholders needs to be managed due to the involvement of long term deals including the life cycle of the asset infrastructure. First.  Inadequate support to enable greater acceptance of PPPs by the stakeholders forms another source of constraint.  Ability of public institutions to manage the PPP process should also be subdued. the provision of inputs for public sector provision can be contracted-out to the private sector. Approval schemes for PPPs in the central sector has been streamlined through Public Private Partnership Appraisal Committee( PPPAC).

garbage collection and road maintenance in local government . However. work intensification (as employment declines) and imposed ceilings on wage increases may mean that better staff leave out of frustration. Second. The interest of taxpayers is also served by greater accountability resulting from increased competition¶ Outsourcing can. . Outsourcing allows the government to relocate those operations that are less commercially viable while at the same time maintaining the integrity of the public asset. Where services are complex and involve multiple tasks the evidence is less clear cut. Contracting out may be the only means available for covering for such staff losses. First. disillusionment or the lure of better pay in the private sector . µcontracting out promotes a climate of competition. as the discussion indicates we need to go beyond static efficiency gains in order to obtain an overview of the full impact of contracting out in the public sector. where outsourcing is a precursor to full scale privatisation. Second. outsourcing can be a means of reducing costs and employment and improving the position of the balance sheet so as to enhance the market value of the privatised asset. This applies to both contracting out and contracting in. The pressure of growing job insecurity. which will enhance efficiency and productivity for the benefit of consumers.that previous public sector activities and public sector employment are re-located from the public to the private sector. There is clear evidence of cost savings (and efficiency dividends) for basic services such as cleaning. be self-fulfilling. The reasons for outsourcing can be grouped into two main areas. there are efficiency reasons related to cost savings and improvements in service delivery. Overall. in a sense. the report card on contracting out is mixed. there are ideological and political reasons associated with the appropriate role and size of the public sector. The fiscal squeeze imposed on public sector wages and conditions may mean that it is more difficult for the public sector to retain qualified and experienced staff in professional occupations.

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