Noel A. Ihebuzor
Discussions on public sector reform, the merits or otherwise of privatisation in general and of the PPP as the missed panacea to the problems of the Federal Government Unity Schools were on social media a few weeks ago.
I kept away from the discussions for very private reasons. I simply made notes of my thoughts and now wish to share these.
- Public sector management and reform are multi-disciplinary in nature and not all about economics.
- The domain of public policy is about economics, the social, the political, the cultural and the emotional. Reforms that focus on one of these areas to the exclusion of others invariably fail.
- Public reform agents who fail to factor these diverse domains in their reform efforts and who then fail should be held accountable for loss and waste of public assets.
- The saying that Governments have no business in business has now become part of conventional wisdom and popular folklore.
- Governments are simply expected to create the right policy environment and realistic regulatory frameworks, step aside and let the invisible hands of markets drive things to perfection.
- For some good and services however, the allocative efficiency of markets is not optimal.
- We now know that markets may not always be efficient and when markets, through their operations, create negative net losses on transactions, we talk of market failure.
- When this happens, governments then initiate policy interventions designed to provide services which markets may have failed to deliver. Governments do this to serve the overall interest of society and to deliver certain desired outcomes.
- Governments may not achieve the same cost efficiencies as markets in certain areas in the delivery of services. This is because their foci are less on profits and more on social benefits.
- In decisions as to which route of service delivery is preferable, we must be alive to the reality of trade-offs.
- When Government interventions result in outcomes that are sub-optimal, we talk of government failure.
- Public sector reform advocates/champions should recognise the realities of both government and market failures.
- Confronted with the reality of government failure, the temptation is often to forget the notion of trade-offs and to immediately want to call in private service providers.
- But private service providers may not be best suited to provide certain goods and services.
- In the public realm, we can identify two main types of goods – private and public goods.
- Private goods have two key qualities – their consumption is rival (the consumption by one person decreases its overall availability and secondly persons can be excluded from consuming them by virtue of the fact that some money is needed to consume them.
- Public goods on the other hand are non-rival in their consumption. They are also non-excludable. Their consumption results in net benefits to society.
- Markets are not very effective in allocating some public goods
- This is particularly so because of three of their qualities of public goods earlier referred to – Their consumption is non-rival, their consumption is non-excludable and their consumption results in externalities.
- The social costs of market driven policy reforms can outweigh their economic benefits as a result of negative externalities.
- The invisible hand of market can also result in social exclusion and social cleavages. When such threats are perceived as real, governments intervene to reduce these negative side effects that markets can produce.
- Some public services are set up with objectives that go beyond the logic of penny packaging economics.
- I consider basic education to be a public good, though it is perhaps better to see to see it as merit good. Public and merit goods like education have huge externalities.
- The social rates of return of basic education are huge but private markets may defeat these by using price to exclude. Social protection interventions such as safety nets and cash transfer schemes which are then put in place to check such exclusion and mitigate their negative impacts involve – financial and transaction costs.
- Nearly every nation in the world has committed to Nine years free and compulsory basic education.
- Would privatising that component of basic education that government provided it make its delivery more effective – both in terms of costs and social benefit analysis? Would privatisation, through PPP, not impose new transaction costs?
- Would the argued efficiency gains cancel out such costs?
- Proponents of privatisation of basic services will need to answer questions such as these clearly and convincingly and with enough evidence to carry all stakeholders along. Some of the arguments and presentations I have seen provide fuzzy answers to these questions.
- In the provision of some public services, inefficiencies and wastes do occur. But the solution is not to unleash the market as the ultimate solution. That would be a knee jerk reaction
- Unprincipled privatisation can lead to disastrous outcomes.
- Not all goods and services can or should be privatised.
- We should note the realities of economies of scale in the provision of such basic services as education.
- Education production usually involves high production costs. Private providers in PPP ventures are only coming in because government has already met a major proportion of these high set up costs. The suggestion that government will remain the primary funder under a PPP scheme is another attraction for these investors.
- When fixed cost in education production is very high and the potential number of students is very low, no private firm would like to enter such a market since it’s not profitable to provide such a service. Private firms can only enter if they think they will make gains. Notice how very few private providers of education get into the education of children with visual, hearing or mental challenges!
- One conclusion from such observation above is that the interest of most private providers is profit!
- The cost of checking the perverse effects of the profit motive in a PPP initiative is huge. We should also note the dangers of gaming, multi-tasking and creaming
- Though public provision may end up with less accountability and more inefficiency, yet sponsors of PPP will need to prove beyond reasonable doubt that private production will result in more efficiency and more accountability and that the costs of achieving these two are not hidden, will not involve huge transaction costs and will not result in negative externalities and other social costs.
- We must recognise that private markets are inefficient in the sense that they place their profit ahead of concerns for social equity and appropriateness. Ensuring these two are reflected in private markets usually means additional costs and quasi government in markets.
- The Unity Schools are not working as efficiently as they ought to but the solution to the problem does not lie in PPP. Indeed time is right now to look critically at these schools with regard to their size, numbers, spread and the degree to which they have achieved their initial objectives.
- Luckily, our constitution recognises private provision of education. Those who want to improve quality of education should ask such private investors to establish their own schools, provide quality services. Their schools would then become models that would challenge and inspire others to excellence.
- The inheriting of /taking over of/running of Federal Government assets majorly by private providers is not the way to go. Building their own schools, striving and thriving in such schools by such well-meaning private providers appear to be the most sensible route to go.
- These are my thoughts. I have written #42 because I hate to end a presentation on an odd numbered item. Lol!
Glad to have your considered reactions.
Readers may also want to read my reflections here on leading and managing change in the public service.