20 January 2007

Waste: Public Sector v Private sector.

Polly Toynbee provoked a good debate about the value of public sector jobs this week. One of the most sensible responses was this by a commenter called ny156uk;

"The state-sector provides a valuable and required role in maintaining a prosperous nation, but we must ensure that we are getting both value for money and not having roles/jobs owned by the state when a private-company could provide them at lower-cost and better-value to the customer and tax-payer alike...The state doesn't have to own and run the industry to grant the poor access to it, it just has to collect taxes and redistribute some wealth from those who can afford towards those who cannot."

I think this paragraph sums the debate up. There are some things the public sector does better than the private sector, compare the NHS with the US healthcare system. The US spends twice per capita what we do but is ranked 37th in the world in overall health outcomes by the World Health Organisation (WHO) compared to our ranking of 18th.

People forget that we, the consumers pay for things like advertising and pay for the company profits creamed off by shareholders. This can be as wasteful as poor management and organisation in some public sector service provision. There are lots of examples in the private sector of areas where it is difficult for new players to become established in a market. Where competition is stifled in this way, consumers can be exploited with a deterioration of service and a hike in prices. Generally the private sector works better than the public sector but this is dependent on competition which of course can mean inefficient private companies can go out of business, something that generally doesn't happen in the public sector.

The key driver of efficiency in both the public and private sector is competition and sadly this can sometimes be lacking in both. There are also some organisational benefits for the public sector. For example the private healthcare in the US has to waste huge sums of money on advertising and administration of individual premiums for each 'customer'. This is a cost the NHS doesn't have. Also a private healthcare system is there to make a profit not improve health so it might have an incentive to perform unnecessary procedures. Once again this inefficiency can be avoided in the public sector.

Because the media concentrate so much on waste in the public sector and not the private sector, it can be easy to forget that there are inefficiencies in both and that we pay for both.

The general point to make though is that for those on lower than the median average income of 23k, they get fantastic value for money for their taxes. Generally a large proportion of the extra public expenditure has gone into improving services and very little is wasted. This is not the impression you would get from reading the Tory press, but of course they have their own agenda.

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