Ninth Annual Conference on Management of the Pakistan Economy Human Capital Development for Sustained Economic Growth/ Governance and Service Delivery: Balancing Market and Government Failures

Abstract

Whether to provide services by the public or the private sector has been at the center of debates within governments and those in the international aid industry for decades. Unfortunately, this debate has often been cast in terms of absolutes with the private sector either as savior or demon. Casting the issue in this light simply can’t be correct. It cannot be the case that either is appropriate for every service and with every government regardless of its capability to the exclusion of the other. In every case, policy makers need to ask “how can the government improve the well-being of citizens with the constraints and tools at hand?” Those constraints include the ability to implement and monitor policy. This paper outlines how limitations of the market can be matched to appropriate interventions by government as it actually performs, not as it is hoped to perform. This matching will, by necessity, vary with country circumstance. While pure public goods must be provided by government regardless of its weaknesses and pure private goods should generally be left to the market, most serious policies operate in between. The balance of the limitations of the sectors needs careful analysis. The welfare costs of private market failure are rarely measured and the difficulties of implementing different policies are rarely discussed let alone quantified. Policies that are sensitive to deviations from perfect implementation should be avoided in preference to those that are more robust to circumstances. Further, every policy will generate interest groups that will constrain future decisions through political pressure. Examples from various sectors include health, where interventions vary from nearly pure public goods through nearly pure private goods to the complicated set of issues raised by insurance market breakdowns. Education, particularly in Pakistan, should challenge government to question fundamental assumptions concerning its responsibility. Infrastructure can often be subdivided into core public responsibilities and those that can admit competition – circumstances varying with technological change. Finally, questions regarding the sensitive topic of police services are raised.