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Question #4. Identify at least four market mechanisms used by some governments. What are the advantages and disadvantages, empirical and normative, of using market mechanisms?
Public – private partnership
Thinking about the Public service value
2 pages single space
Question#4. Identify at least four market mechanisms used by some governments. What are the advantages and disadvantages, empirical and normative, of using market mechanisms?
Public – private partnership
Thinking about the Public service value
(#4I think THE major issue about most market based mechanisms. mention in any of the disadvantages the main thing— what is the goal of the organization doing the job? Profit or Public Interest? Think about this.)
Intro: Market Mechanism: (4) Anything where you induce competition in some way to facilitate public policy
o Empirical means what is observable. What IS The factual impacts?
o Normative means the idea, what should be.
– How do market mechanisms impact the ideals of public administration
1 : originating in or based on observation or experience empirical data.
2 : relying on experience or observation alone often without due regard for system and theory an empirical basis for the theory.
3 : capable of being verified or disproved by observation or experiment empirical laws.
Syn: experimental, factual, observational
1: of, relating to, or determining norms or standards
2: conforming to or based on norms; Things that should be!
Syn: regularizing, regulating, standardizing
Identify at least four market mechanisms that have been used by some governments to manage their operations What are the advantages and disadvantages of using market mechanisms, both empirically and normatively?
-a unit of government selecting a vendor to provide a service that the unit historically would provide by itself.
· Transferring an existing public entity or enterprise to private ownership ( can be done w/ competition)
(PPP) Public- private partnerships
· Contracts that are often long term between private sector and gov’t
· Determines whether commercial activities should be performed by gov’t or private sector
1. Outsourcing (MOST COMMON)- a unit of government selecting a vendor to provide a service that the unit historically would provide by itself.
– Contracts out organizational activities to vendors or suppliers
· Vendor/ Buss/ Orgs.
o Specialize in activity.
o Do it efficiently & Effectively.
o Do service at a more affordable rate than the organization itself.
Ex. A city outsourcing their fire department/police
· -Government remains responsible for provision of all services & management decisions (AKA they make the rules about how, contract company delivers it).
-Goal: reduce costs, to access expertise on a long-term basis in order to be able to vary its quantity and mix over time.
Outsourcing (contracting out) “is the practice whereby governments contract with private sector providers for the provision of services to government ministries and agencies, or directly to citizens on behalf of the government.” In other words, outsourcing is an alternative to the provision of public services by in-house agencies or companies controlled by the government. The cornerstone of outsourcing is an open and competitive procurement process to select the provider.
· Harnesses competition and accountability to increase productivity
· Reduce dependence on a single supplier or service provider
· Higher performance at a lower cost
· Provides government services at a fraction of the price
· Allows government to create contracts with organizations in the free market that can provide excellent service
· The aim is to contain costs, increase productivity, or improve quality
· Enables government to take advantage of specialized skills, new technology, and innovation that are lacking in public sector
· enables you to plan and execute more effective, targeted campaigns and projects that you wouldn’t ordinarily be able to take on. This gives your business the chance to take new risks and experiment with different methods of exposure. (Open market)
· outsource with a reliable individual or agency should give you peace of mind that tasks are being handled expertly and efficiently without you having to worry
– Personnel disruptions/displacement
– Hidden cost
– low bid contracting without careful specification of service quality can lead to poor service.
– Limit flexibility in govt responses in emergencies or time-sensitive situations
– Complex and time consuming if not managed well
– Less security: privacy can be at risk
– Time frames may not be reliable.
PUBLIC-PRIVATE PARTNERSHIPS (PPP) – A public & a private entity collaborating for the delivery of a public service.
· Often long term CONTRACT between the private sector and government- contract will outline which party holds which responsibilities.
· Private entity finances & manages a project in return for payment from the public org.
· SHARE the costs, risks, benefits, and profits
· Often used in infrastructure provisions
· Ex: Cities working with private tech companies to provide high speed internet connections to residents.
Public-private partnerships (PPP) describes the arrangement as a specific form of private sector involvement in the delivery of public services in infrastructure projects located between traditional public procurement and the full privatization of public tasks. Another element describing the partnership, which is given particular attention in literature, is the transfer (sharing) of the significant risks associated with the project to the private sector, coupled with the pre
· Allows govt to pursue projects they otherwise could not afford to finance
· Can generate revenue
· Incentivizing the private sector to deliver projects on time and within budget
· Exploring PPPs as a way of introducing private sector technology and innovation in providing better public services through improved operational efficiency.
· Return on investment (ROI) might be greater than projects with traditional, all-private or all-government fulfillment. Innovative design and financing approaches become available when the two entities work together.
· Utilize the expertise and skills of private sector
· Better infrastructure solutions than an initiative that is wholly public or wholly private
· Faster project completions and reduced delays on infrastructure projects
· Risks are fully appraised early on to determine project feasibility
· Government assumes greater portion of risk compared to other forms of privatization
· Can increase government costs.
· Limit the competitiveness required for cost-effective partnering.
· Profits of the projects can vary depending on the assumed risk, the level of competition, and the complexity and scope of the project.
· Authority can be blurred and roles can be unclear between partners
· If the expertise in the partnership lies heavily on the private side, the government is at an inherent disadvantage
PRIVATIZATION– Transferring an existing public entity or enterprise to private ownership.
– Can be done with or without competition.
– It differs from “outsourcing” in that the management and the workforce—and often the equipment and facilities—remain the same as before, except that they are now private employees (and private equipment and facilities)
: private prisons, education (for-profit universities), Health (private hospitals).
1) Full Privatization: the entire gov’t agency is sold and it is now private. Ex. Prisons
2) Partial Private: the equipment and facility remain gov’t owned but the workforce is privatized. (EX: govt owned and contractor operated)
3) Privatization in place: The work remains at the prior facility, and can be both “full” privatization (i.e., labor and equipment), or “partial” privatization (i.e., labor only).
· This arrangement preserves jobs and may guarantee workload, although civil servants transition to contract labor
Privatization is the process of transferring property from public ownership to private ownership and/or transferring the management of a service or activity from the government to the private sector. Privatization can be partial or complete. It may also carry conditions as to the change in ownership.
· Govt assets can be converted into revenue through sales to private entities
· Public sector does not have to hire staff to provide a service
· Access to a larger talent pool or access specialist suppliers with greater capabilities and higher quality.
· Contract payments to private company
· With competition – higher quality services at lower prices
· customers receive better prices and higher performance for private services formerly provided by government monopolies
· Saves taxpayer money
· Limits political interest
· Private companies know what they are doing (they are the experts)
· Private monopoly, not necessary competition (like intended)
· The private companies can have other priorities (ex. opens door to bulk water exports)
· Private sector focuses on stakeholders, instead of the residents
· Problems With Quality or fails to meet quality standards or not deliver.
· Controversial because services that are typically considered to be government responsibilities now are done for profit (about profit and not service provision)
· Limits access to services for low-income Americans
· Removes job opportunity (salary and benefits) to local employees
· Limitation to transparency
· Limits government to uphold standards and regulation
4. COMPETITIVE SOURCING: Competition for work between private and public sectors
· Winner of competition (such as through competitive bidding) will perform service
· Who can do the job faster, at a lower cost, with better performance
· Determines whether commercial activities should be performed by govt or private sector
· Empirical: Higher quality services at lower cost
· Normative: Replaces government monopolies by introducing competition
· Allows opportunity for govt to retain work of service provision if wanted (unlike in outsourcing or privatization)
· Empirical: Time consuming, expensive, & Complex.
· Normative: Forces public employees out of work
1. Utilization of private sector skills/expertise
2. Public organizations can gain competitive edge
3. Allow for more prosperous and effective distribution of goods and services
4. More cost-effective
1. Requires a skill set that differs from those typically held by public managers
Negotiation, contract writing/management, monitoring external partners, enterprise management, etc.
1. Loss of control over public expenditure
2. Contract terms may extend beyond current administrations
3. Emphasis on lowest bids; can result in less of priority of quality of services
4. Disruption in workforce
5. Can shift focus away from public service values to profits.
“Public Service Values”
Public Service Value Fluff
– Public Service- something organized by the govt or an official body in order to benefit all the ppl in a particular society or community
– Public servants shall perform their duties and arrange their private affairs so that public confidence and trust in the integrity, objectivity and impartially of government are conserved and enhanced.
– Public Servants are motivated to serve the public
– Public Servants are not motivated by profit and only have the public’s interest at hand
Market mechanisms; why should we run government like a business? Because in the private sector, the market acts through capitalism and competition to be the most efficient environment of production. Government as a monopoly does not have the motivation to save money, but the private sector does. The reform logic states that we should use market mechanisms to somehow get the government to think about efficiency and not just regulation. Some widely used market mechanisms are outsourcing, competitive sourcing, fixed priced contracts, performance based contracts, privatization and public private partnerships and vouchers such as food stamps.
When using these market mechanisms, there are advantages and disadvantages. Empirical theory talks about how participative leadership works (what actually happens), while normative theory talks about why it is a good thing- given public service values. In order for a market mechanism to work for the organization, it will all depend on the execution of the mechanism and the mechanism actually being tried by the organization.
Outsourcing is the organizational activities that are contracted out to vendors or suppliers who specialize in these activities (usually in a competitive fashion).
It’s advantages: efficiency and it reduces cost because it harnesses competition and brings the pressure of the marketplace to bear on the inefficient producers. It allows better management control by freeing government managers of most of the distracting influences of overtly political organizations and civil service constraints. Managers see more directly the costs and benefits of their decisions. Outsourcing enables the government to take advantage of specialized skills, new technology, and innovation that lacks in its own organization. Its disadvantages: limits the flexibility of government in responding to emergencies if not provided for in advance (through contract). Contracting processes can be complex and time consuming. Outsourcing can also cause personnel issues and transition problems if not planned accordingly.
Empirically (what is): government cannot fulfill all of the functions needed by its stakeholders alone due to regulation, cost, and bureaucratic process, therefore relies on outsourcing.
Normatively(what should be): with outsourcing it can be argued that government should provide certain function because it is their duty to provide certain services to the public.
Competitive sourcing occurs when government or current public providers compete with the private sector to carry out commercial government activities. It’s advantages: regardless of who wins, the federal government achieves significant performance improvements and savings of 20-50%. It introduces competition and wherever possible, eliminates monopolies. There is no loss of government control since government is still responsible for providing high-quality performance within the quoted costs. This competition leads to improved quality at lower cost. Disadvantages include: resistance and controversy from federal employees, unions, political allies and government managers, it is seen as an assault on federal employees by shifting their jobs to the private sector. Managers fear loss of control over the work, fear of losing federal jobs and the process is time consuming and complex.
Empirically (what is): If a public agency loses the bid they may lose the jobs and employees. This can decrease morale and trust in the agency.
Normatively (what should be):Should save money and create a free open competitive space.
Public-Private Partnerships are attempts made to combine the best of both, the public and private-sectors, in a competitive environment. It allows the public and private sectors to share costs, risks, benefits and profits. Instead of the government providing the resources for public functions, the work is actually financed by the private sector in a variety of approaches. Advantages include: sharing the risk, government can take advantage of privately owned infrastructure, technology, and financing. It allows government to finance facilities or services needed that it could not afford to fund. It makes the most productive use of valuable government assets by bringing in revenue, reducing overhead costs and providing investments for facilities. However, one disadvantage is that authority can be blurred. Others: potential for roles to be made unclear between public private partners and government assumes a greater portion of risk compared to other forms of privatization.
Empirically (what is): Public-Private Partnerships take advantage of the needs of the government by seeking ways to make investors happy.
Normatively (what should be): Public-Private Partnerships should have a shared cost and mutual benefit of working together to achieve a common purpose.