Public versus Private Provision of Public Services Philip Gray PSAS Presentation to Poverty Day October 17 th 2002

Introduction  Public Services and their role in poverty reduction  ‘versus’ is a misnomer – public and private play complementary roles  Policy, regulation and financing roles of public sector  Residual role for public sector service provision?

Public Services and Poverty Reduction  Infrastructure - Voices of the Poor, “The lack of basic infrastructure – particularly roads, transportation and water – is seen by the poor as a defining characteristic of poverty” (Narayan, 2000)  Health-care – Public health a key determinant of economic growth  Education – development of human capital and essential pre-requisite for operation in modern economy and society

Complexities  Different forms of private participation – service contracts to concessions to sales  Liberalization of service provision  Financing issues – subsidies, user fees, insurance  Externalities and public goods

Roles of Public Sector Policy – setting rules Financing – covering externalities and affordability Service Provision Regulation – Monitoring, Enforcing and Updating rules

Roles of Public Sector Policy – setting rules Financing – covering externalities and affordability Service Provision Regulation – Monitoring, Enforcing and Updating rules

Failures everywhere – what to do?  Market failures – externalities, public goods, information asymmetries – can be solved through mechanisms other than service provision  Public failures – public service provision – poor incentives, soft budget constraints, corruption - see Bureaucrats in Business  Middle Ground – Better focus of public sector on policy, regulation and targetted subsidies

Examples  ‘Contracting Out’ – Public sector financing of private provision – monopoly with better incentives and regulation (e.g. Cambodia health)  ‘Vouchers’ – Public sector financing of private provision – liberalized sector (e.g. Chile)  ‘Charter Schools’ – Public Provision with choice (e.g. DC education)  Public financing of connections – OBA schemes, eg Peru telecoms, Guatemala power, Paraguay water

Cambodia Health Care

% of poor people sick in the last month using health facility

Change in key indicators