Balancing Market and Government Failure in Service Delivery

AbstractWhether 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.Keywords: Social services delivery, governance, education, health delivery, Pakistan.JEL classification: H11, L88.1. IntroductionI am honored to have been asked to give the introductory lecture to this conference on service delivery in Pakistan. I believe that improved services in health and education, and the transfer of purchasing power to the poorest people of Pakistan are of great importance to their welfare. As a longstanding observer of Pakistan, South Asia, and the poorest countries of the world generally, this is a goal I have deeply at heart.However, I think we have become intellectually lazy in searching for the means to achieve better wellbeing. We have looked for simple solutions, usually of the variety "spend more money on things in which I (as a health, education, or social protection expert) take a particular interest." We have also become prone to wishful thinking that almost anything that is intended to improve welfare magically does so.My argument here is that the design and implementation of effective policies in these sectors requires us to face hard realities of the constraints under which governments operate. These constraints are not solely-and I would argue, not primarily-limited funds. The government is further hampered by endemic problems of governance when the stage of implementation is reached. Ignoring this fact of life has led to enormous sums of wasted money.The term "governance," too, has been used with a certain degree of laziness. This essay argues that there are concrete, if difficult, choices that specific kinds of limitations to public performance force us to make-choices that make it necessary to think strategically about the type of spending that is most important. From a more practical point of view, no government has complete control over income, health status, or education. What governments can do is facilitate improvements in all three, recognizing that their ultimate drivers are individual peoples' millions of actions.This essay seeks to put the research carried out for this conference in a context that is useful for policymakers. What do we recommend policymakers do to favorably influence these millions of actions? The answers will differ both from sector to sector and from government to government. The essay reviews, briefly, the standard approach from public economics on policymaking, focusing on resource and market behavior constraints. …