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Public Services
International
www.world-psi.org
Public Services Work 1
Information, insights and ideas for our future
Public Services Work !
Information, insights and ideas for our future
Commissioned by
Public Services International
Written by
David Hall
PSIRU
University of Greenwich
d.j.hall@gre.ac.uk
PUBLIC SERVICES WORK!
Information, insights and ideas for our future
Abbreviations ...............................................
.............
............................................................. 4
Preface.............................................................................................................................................................. 5
1
INTRODUCTION AND EXECUTIVE SUMMARY.................................................................................. 7
2
COMMUNITY AND SOLIDARITY: HISTORICAL DEVELOPMENT OF PUBLIC SERVICES......... 7
2.1 History of public services.............................................................................. ... ....................................... 8
2.2 Social welfare and income distribution................................................................................................... 10
3
2.3
2.4
Building political entities: nations, decolonisation, municipalities....................................................... 12
Public services and the economy ............................................................................................................ 14
2.5
Taxation, redistribution and borrowing
............................................................... . .......................... 16
GOVERNANCE, ACCOUNTABILITY AND PARTICIPATION
...................................................... 18
3.1 State capacity .......................................................................................................................................... 19
3.2 Central and local government. ....
...........
...
...................................................19
3.3 Political activity and public participation ............................................................................. .................. 20
3.4 The role of public service unions..........................................
............................................... 23
4
PROBLEMS, REFORMS AND THE FUTURE OF PUBLIC SERVICES............................................... 24
4.1 Responding to changes and problems .
.................................................................................... 24
4.2 Private sector in perspective................................................................................................................. 27
4.3
4.4
5
Labour
............
............................................ ................................................... 32
The future of public services .................................................................................................................. 36
CONCLUSIONS.......................................................................................................................................... 38
5.1 Choices and reforms .................................................................................... ............................................. 39
5.2 Social solidarity, citizenship and TAP
...................................................................... 39
5.3
6
Global solidarity .
........................................................................................................................... 39
NOTES................................................................................ .......................................................................... 40
Abbreviations
AMC
BOTT
DWASA
EBRD
EC
EU
FDI
GATS
GDP
HELCOM
HIPC
1ADB
ICT
1FC
IFIS
IMF
1PPS
MDG
MERC
MIGA
MNCS
MSEB
NGO
NHS
NIS
OECD
OP
OSS
PFI
PPA
PSI
PSIRU
PUD
PUP
SK
SMES
TAP
TED
TQM
UN
UNDP
UPE
WB
WHO
WIPO
WTO
4
Ahtnedabad Municipal Corporation
Build, Operate, Train and Transfer
Dhaka Water and Sanitation Authority
European Bank for Reconstruction and Development
European Commission
European Union
Foreign Direct Investment
General Agreement on Trade in Services
Gross Domestic Product
Helsinki Commission
Highly Indebted Poor Countries
Inter-American Development Bank
Information and Communications Technology
International Finance Corporation
International Financial Institutions
International Monetary Fund
Independent Power Producers
Millennium Development Goals
Maharashtra Electricity' Regulatory Commission
Multilateral Investment Guarantee Agency
Multinational Companies
Maharashtra State Electricity' Board
Non-Governmental Organisation
National Health Service
Newly Independent States
Organisation for Economic Cooperation and Development
Ortjamento Participative
Open Source Software
Private Finance Initiative
Power Purchase Agreement
Public Services International
Public Services International Research Unit
People’s Utility District
Public-Public Partnership
Stadtsparkasse Koln
Small and Medium Enterprises
Transparency, Accountability' and Participation
Tenders Electronic Daily
Total Quality Management
United Nations
United Nations Development Programme
Universal Primary Education
World Bank
World Health Organisation
World Intellectual Property Organisation
World Trade Organisation
Preface
ublic Services International is running a global campaign in support of Quality Public Services. PSI
and its affiliates are committed to working to build public services that meet the needs of communi
ties. In some circumstances, this means campaigning for more and better services or defending services
that are threatened; in many circumstances it means working to reform and build existing services. In all
circumstances it means working positively with communities to ensure that problems are addressed and
quality delivered.
P
“Public Services Work!” has been commissioned by Public Services International as part of the campaign
for Quality Public Services and to contribute to the debate about equity and development, made more
urgent as the effects of globalisation are increasingly and inequitably felt.
This booklet presents a wealth of information about the role of quality public services in building strong
societies. It is based on researched cases and empirical information from the past and the present, from
developed and developing countries. It refers to official, academic and unofficial sources. Importantly, it
identifies the principles chat underpin Quality Public Services: the commitment to community and soli
darity and the need for accountability and democracy. It offers concrete, documented examples of what
works and why. Delving into the great history of public services, it examines successes and failures and
advances proven and new ideas about reform. It identifies the issues facing public services in developed
and developing countries today and offers insights, ideas and options for the future.
“Public Services Work!” is based on the central premise that the world has a great and long-term experi
ence in why public services matter. Sendees such as healthcare and education have been developed in almost
every country on earth over the last century or two. The effects of such systems are delivered and studied
over years and decades, and debated by the public and politicians throughout this time. It is these experi
ences that the booldet draws on.
As the 21” century progresses, it is becoming apparent that the ideals expressed in the United Nations’
Millennium Development Goals will not be met under prevailing market based economic policies. If the
world is to achieve the eradication of extreme poverty and hunger, universal primary education, improved
health and lower infant mortality rates, equity and sustainable development, there must be a positive plan
built on a foundation of quality public services.
Since the early 1980s, neoliberalism has dominated debates and decisions. Its ideological champions,
including political leaders influenced by corporations, and international organisations controlled bv the
wealthiest nations, advance privatisation and market forces as one-size-fits-all solutions to development.
Under their policies, often pushed aggressively by multilateral lenders such as the World Bank, public serv
ices have become commodities to be bought and sold and citizens have been turned into customers. Under
the guise of policy innovation, the developed world, whose populations are key beneficiaries of strong
public services, now tries to deny developing countries the same opportunities.
Proponents of privatisation argue that reforming public services requires radical new solutions. Numerous
critiques by academics, international organizations like the UNDP, NGOs and trade unions have high
lighted the risks of those radical ideas and the reasons why they fail again and again. After so much disap
pointment and many outright catastrophes, there is now a well-documented analysis of why it’s so hard
for privatisation to work - even in wealthy countries with strong institutions, let alone in poor countries
with weak governance.
Ironically, the problems of privatisation are better understood than the promise of public services. Even
though a huge percentage of the world’s population depends on quality public services every day, there is
still a perception that government “doesn’t work.” Of course, it's not hard to find places where this is true.
Problems in design and delivery of public services can be profound and diverse. Whether the problem is
lack of funding or expertise, poor management or work performance, lack of accountability, corruption
or conflict of interest, all prevent the delivery of Quality Public Services and must be addressed through
a range of specifically targeted reforms. These are best achieved through citizens, workers and governments
working together to deliver quality,
“Public Services Work” provides powerful evidence that high quality public services underpin strong
economies and provide opportunities for growth and development. Built on principles of community and
solidarity, accountability and democracy, Quality Public Services offer the opportunity to achieve the objec
tives expressed in the Millennium Development Goals, and to build a better world.
Hans Engelberts
General Secretary
Public Services International
www.world-psi.org
6
1. Introduction and executive summary
his booklet examines public services by look
ing at their past, present and future. It charts
the actual development of public services and the
effect they have had on social cohesion and
economic growth, the political structures and activ
ity which creates and sustains them and the current
problems and future opportunities, including the
opportunities arising from globalisation. This histor
ical framework helps identify factors which may be
more important for the future of public services
than the experiences and fashionable solutions of
the last 20 years.
The first section outlines an historical account of
how public services have been developed over time
to meet the changing needs of communities. It
outlines early forms of public service, including
roads and defence, and how systems developed to
provide both quality of life and services support
ing economic development. It examines the role of
the welfare state, the role of public services in build
ing communities at local and national level, and
the wide range of services that are provided publicly
in different times and places, which is not limited
to economists’ definitions of public goods. It further
examines how public services make a positive
contribution to economic growth and how the
financing of public services requires redistribution
dirough taxation and cross-subsidy, which has differ
ential impacts on rich and poor.
The second section looks at the political structures
of public services, and focuses on four aspects.
Firstly, it discusses the need for governments to have
the capacity to deliver public services, whatever the
role of regulation. Secondly, it looks at the relative
role of central and local governments, how these
change between countries and over time, and the
particular ways in which this affects public services
in former communist countries in transition.
Thirdly, it notes the importance of political activ
ity and public participation both to create public
services and to maintain their accountability and
responsiveness. Fourthly, it discusses the role in this
process of trade unions representing public service
workers.
The final section looks at the present and the future
of public services. It considers the internal and
external problems which are making it difficult for
public services in many countries to deliver their
objectives. It discusses the impact of introducing
the private sector, including the question of rela
tive efficiency, and the particular relevance of labour
in public services. Finally, it considers what are the
future prospects for public services, and the poten
tial contributions of internationalisation.
In conclusion, the booklet highlights the historical
importance of democratic political activity in devel
oping and directing public services, the need for
central and local government institutions to have
the capacity to deliver services, and the importance
in future developments of effective solidarity at all
levels from local to international.
In all chapters, some points are illustrated by boxes
containing case studies drawn from both current
and historical experiences, in both developed and
developing countries.
2. Community and solidarity: historical
development of public services
Public services are a normal part of civilised human
life. They are organised to meet political, social
and economic needs. They are a central function
of the state and a central issue in political debates.
These services have not been developed as tech
nical exercises in filling gaps where the market has
failed, or is in need of temporary supplementary
help. The history helps show how public services
have been central elements in the development of
communities, nations and economies; how polit
ical institutions have developed and delivered these
services; and how their finance has been based
on politically contentious redistribution through
taxation.
This section aims to set our;
— the outline of how public services developed
- the principles of community and mutual support
underlying the development of social welfare
- the role of public services in building nations and
communities, and the diversity of services
— the contribution of public services to economic
development
- the systems of financing public services.
2.1 History of public services
Public services have been developed over a long
period - over a century - in virtually all countries.
They are found in most societies in history. The
ancient Chinese state managed irrigation, canals,
security and emergency public grain stores; the Inca
state in South America organised roads and water
supply; the Roman empire provided theatre and
pensions. Health and education are generally
thought of as the two main public services, but in
different places public services may still include
nearly all services from banking to music, food
subsidies to airlines, wakeup calls and prisons,
forestry and radio wavelengths.
In medieval Europe, the state carried out the func
tions of defence, public order and justice. Roads,
bridges, harbour maintenance, and lighthouses were
developed; drainage and water boards were estab
lished to manage agricultural common services;
poor relief, hospitals and schooling were offered by
charities. Later, postal services were set up as a ‘royal’
sendee. Much of this was done by raising taxes and
employing people to do the work. In the 18th and
19th centuries, new infrastructure services in trans
port and utilities were started privately and then
taken over and extended by public authorities —
these included canals, railways, gas, water and elec
tricity. The 18'h century frequently provided these
networks and sendees by a process of farming out
concessions to private companies who were then
given a protected monopoly to raise charges and
taxes to finance rhe business. This system broke
down in France because of corruption and exces
sive exploitation of the monopolies, where it was
one cause of the French revolution. In the UK the
same abuse by monopolies led to an increasing trend
towards ownership and operation by public author
ities.1
Over the next century, the old system was almost
entirely replaced by public ownership and public
provision because of the inefficiency, costs and
8
corruption involved in the old private system, the
‘ancien regime’ of public services. In the late 19th
century, the main mechanism of this was municipalisation. Democratically elected councils bought
I existing utilities and transport systems and set up
new ones of their own, on the basis that they could
exercise more effective control, more efficiently,
with better employment conditions for workers and
with greater benefit to their local population than
the private operators. Councils also gained the right
to borrow money, and so invest in developing their
own systems. This development of publicly-owned
and run local services became known as ‘munici
pal socialism’ (or gas and water socialism), although
there were parallel developments at national level:
the Tor}’ and Liberal governments of Gladstone and
Disraeli nationalised the telegraph system, the Tory
and Liberal governments of Balfour and Asquith
nationalised the new telephone system.
This extension of public provision continued into
the first pan of the 20“' century. Compulsory public
education was extended across Europe, North
America and Japan; public healthcare schemes were
developed; and new services continued to be added.
For example, aeroplanes needed airports and the
private sector was unable to provide the necessary
investment, which grew as technology advanced.
And so both national government and municipal
ities developed airports, including rhe vital func
tion of air traffic control, as public services: “The
ownership and operation ofany aerodrome required
for general commercial use has had to be left in public
hands... with charges low enough to attract traffic,
nearly all these early British airports are inevitably a
subsidy to air transport".1
■
Following World War II, most countries in Europe
were in ruins and in need of redevelopment.
Industries needed rebuilding and so did countries.
The state played the overwhelming central role in
this restructuring, both in the communist coun
tries of Eastern Europe and in Western Europe:
despite the development of the cold war, social serv
ices were reformed and provided as universal serv
ices. In the UK, education fees for secondary
schooling were abolished and free, compulsory
education was provided for all children up to the
age of 15. A system of social security was set up to
provide financial security for all “from the cradle
to the grave”. The railways, gas and electricity
systems were nationalised, as were the mines and
sections of manufacturing such as the steel indus
try (the UK post office, already nationally owned,
still included the telephone service, which had made
a significant research and development contribu
tion to both winning the war and developing the
first computers?)
The creation of the National Health Service (NHS)
in the UK in 1947 transformed the system of
healthcare. Before the reforms, there was a patch
work system of health insurance schemes operated
by various non-profit associations, religious groups
and trade unions, on top of a basic national health
insurance introduced in 1912. Hospitals had also
developed as a mixture of charitable, religious and
state provision, and general practice was a freelance
occupation.
The core principle of the NHS was a universal serv
ice, funded through government taxation and
national insurance, free at the point of care to every
one in the country. The previous network of hospi
tals was nationalised and their staff became public
employees - general practitioners and pharmacists
remained self-employed but paid by the state. The
clear achievements of the NHS include the exten
sion of healthcare to the whole population,
sustained political support from an overwhelming
majority of the public, and a system which mini
mizes financial bureaucracy.
As a result, the NHS is an example not only of egal
itarian welfare state services, but also of efficiency.
It is significantly cheaper than healthcare in other
developed countries that use private and voluntary
insurance systems, and was from the outset recog
nized as such. An American observer in the late
1950s regarded efficiency as the core achievement
of the NHS: “Its chiefobjective, as in the case ofthe
nationalized coal industry, was to improve a remark
ably inefficient and inadequate set ofservices, its chief
means for doing so organizational rationalization and I
the use ofcentral and regional planning... ”4
The international dimension was already becom
ing important. In western Europe, much recon
struction was funded by USA grants and loans
under the Marshall Plan (this replaced the original
USA plan for post-war restructuring which was to
prevent Europe, especially Germany, from ever
rebuilding its industries)5. The Marshall loans did
not include conditionalities. As international coop
eration developed through the creation of the
successive links leading to the creation of the
European Union, the principles of social partner
ship remained central, so that protection for
employees and formal recognition of trade unions
as partners in the political processes of the EU,
continues today.6
Developing countries won post-colonial inde
pendence in the decades immediately following
World War II, and their governments took a strong
role in building the new nations. This was done
through nationalisation of industry which had been
owned by private companies based in the imperial
countries, and also by the development of public
services within the new nations.7 Over the next 50
years, developing countries made health and educa
tional advances that had taken much longer in the
industrialized countries. The greatest advances were
made through countries with state-run systems,
universally available and financed out of govern
ment revenues. These systems provided statesupported sendees with above-average spending for
developing countries, and policies targeted at
communicable diseases, nutrition, and maternal
and peri-natal care. They achieved major reduc
tions in the mortality of mothers and children by
pregnancy' management, household visits and high
rates of immunization. Primary healthcare work
ers were supported by a well-functioning network
of hospitals. Doctors were required to work with
the government health service for a certain period
of time. Countries with the greatest advances in
healthcare had a much higher level of education for
women, which is associated with better nutritional
levels for children and lower mortality rates?
Contrary' to much conventional wisdom, poor
countries can transform the quality of life for the
majority of people through the provision of public
services, especially healthcare and basic education.
The people of Costa Rica, Sri Lanka and Kerala
State (India), Botswana, Mauritius and Zimbabwe,
where these services were allocated above-average
resources,*’ enjoyed much greater life expectancy
than people in richer countries with higher per
capita income, such as Namibia, Brazil, South Africa
and Gabon, with less provision of services. These
services are affordable even in poor economies
because they are labour-intensive, and labour costs
are low in such countries. As a Nobel Prize-winning
economist notes, “a poor economy may have less
money to spend on health care and education, but
it also needs less money to spend to provide the
same services which would cost much more in
richer countries”10.
There was a slowdown in the 1980s, as economic
policies began to constrain state spending. The
number of children enrolled in primary school stag
nated and even decreased in some countries: in subSaharan Africa the enrolment ratio fell from 77-5%
in 1980 to 68.3% in 1990." But strong public serv
ices remain possible for developing countries: the
abandonment of educational charges has had major
Box 2a
effects in expanding education in some African
countries (see box 2a); the achievements of the
Cuban healthcare system demonstrate what is possi
ble even for a poor country (see box 2b).
2.2 Social welfare and income distribution
The central feature of modern public services is
based on the principle of mutual support across
communities, based on shared social objectives.
The strongest model of modern welfare states is the
Nordic model, as found in Sweden, Finland,
Denmark and Norway. It has a number of features:
a large scope of social policy covering social secu
rity, social and health services, education, housing,
employment, etc; an emphasis on full employment,
accompanied by active labour market policies; and
universalism, whereby all citizens are entitled to
basic social securin’ benefits and services, regard
less of their employment status, supplemented by
earnings-related benefits. Services are financed
mainly through taxation, “ without high user fees,
and supporting significant transferfrom rich to poor,
so there is a high level oftaxation and spending as a
percentage ofGDP. Public employees are a high propor-
Ending education charges in Uganda and Malawi
Charging fees for education prevents many children of poor families from being educated. When countries end
school fees it has a corresponding major boost to the numbers in school and so the literacy rate and the general
level of education. The abolition of school fees after World War II in European countries was a major extension
of public education systems. The same effect can be observed more recently in two sub-Saharan African coun
tries, Uganda and Malawi.
In 1997, Uganda abolished fees for primary schools as part of a programme of "Universal Primary Education”
(UPE). School fees had represented a significant part of the income of the education system, so the financial
impact on the state was significant. A World Bank report concluded that: “Even though educationalfacilities had
been widely available even before UPE was introduced, the program led to a dramatic increase in enrolment, suggest
ing that the direct and indirect costs ofschooling constituted a significant obstacle to more widespread primary school
attendance by the poor. This is true especiallyfor girls, whose enrolment rates increased significantly (in some cases more
than doubling) after the introduction of UPE... inequalities in attendance related to gender, income, and region were
substantially reduced." Secondary school fees remained in place, however, and the number of teachers was not
increased to match the greater numbers of pupils (see below).'-’
In Malawi, primary school fees and uniforms were abolished in 1994, which led to an increase in the enrolment
rate from 83% to 98.7%. As in Uganda, there are still fees and uniforms required in secondary’ schools, where
the enrolment rate is 72%.13
10
Box 2b
Cuba’s health indicators match richest countries
Healthcare in Cuba has been one of the regime's top priorities. The system is efficient, not corrupt, and deliv
ers excellent primary care through an extensive network of general practitioners. Despite a relatively low GDP,
and a trade embargo which includes medicines, it has the lowest infant and maternal mortality rates, the high
est doctor-to-population ratio and the highest rate of public health service coverage in Latin America. Its perform
ance on key health indicators, including life expectancy and infant mortality, matches those of much richer
developed countries.
Country
Life Expectancy
(years)
Infant Mortality
(Deaths per
1,000 live births)
Physicians per
100,000 Population
Cuba
Brazil
Mexico
France
Germany
UK
US
76.3
67.0
72.1
78.5
77.0
77.2
76.9
7
32
29
5
5
6
7
346.1
121.3
160.0
251.6
241.9
145.1
215.2
Source Word Bank. World Development Indicators 2001
tion ofemployment. The systems are successful, meas
ured by low poverty rates, equal income distribution
and progress in gender equality. Finally “the Nordic
welfare states enjoy broad public support".''
In the 1990s the economies of both Sweden and
Finland faced problems which led to increased
unemployment and pressures on government budg
ets, including the adoption of borrowing restric
tions. The welfare systems helped the countries deal
with economic crisis through spreading the burden
equally: “developments in economic welfare, measured
in terms ofincome inequality, show that in both coun
tries the depression caused surprisingly little distur
bance. During the deepestyears ofthe recession, income
inequality did not increase overall. This is partly
explainable by the even distribution of economic
misfortunes and unemployment across the population,
and partly by the compensating impact ofthe welfare
state, above all in the form ofincome transfers..."'’’
Supportive welfare systems are not confined to
northern Europe. Japan has a relatively equal
regional distribution of income, one important
factor in which is Japan’s commitment to main
taining levels of employment for people who would
do poorly under market forces. Like Scandinavian
countries, a commitment to full employment is
part of social policy. The regional disparities are
less. One third of Japanese prefectures have a per
capita income within 5% of the average whereas
in the US, only one sixth of the states fall in this
range. Similarly, Japan has impressive social indi
cators, both in levels and distribution: the bulk of
its population has access to good education, health
and basic infrastructure. For example, 98% of
Japanese prefectures have a high school enrolment
rate within 5% of the average (compared to 84%
for the United States). Japanese priorities of public
spending are also different. Public expenditure in
both Japan and the USA is equivalent of about
35% of GDP, but Japan spends relatively little on
defence (0.9% of GDP) compared to the US (3%),
but 2 to 3 times as much as the USA on public
investment.16
11
health.18 In Canada, social programmes after World
War II played a strong role in creating a sense of a
shared identity. One effect of cuts in public serv
ices and social support is to jeopardise this sense of
national solidarity.”
Social objectives can form the foundation of poli
cies on a range of public services, not only social
services. A review of recent energy policies in six
developing countries by an international research
institute reached strong conclusions about the prior
ity that needs to be given to social objectives (see
box 2c).
The same is true for cities. In 19th century European
cities, the development of municipal services was
accompanied by a civic pride in the city councils
themselves, visible in city halls across Europe from
Vienna to Manchester. The same effect is apparent
today: when Ahmedabad city council issued a munic
ipal bond in 1999 (see box 2d), there was local pride
in the fact that it was the first city in India to do so.20
2.3 Building political entities:
nations, decolonisation, municipalities
The development of public services and social
programmes is an important element in the creation
of communities and political entities at all levels.
The provision of national services is one central
way in which national identities are created. In
many countries, independence from colonial rule
was marked by the expansion of public service: in
sub-Saharan Africa, in the first 20 years after inde
pendence, there was a strengthening of health infra
structure and significant improvement in people’s
Box 2c
'
|
The loss or absence of public services and the insti
tutions providing them can be correspondingly
damaging. Cali, in Colombia, had developed a
successful municipal utility company, Emcali,
which ran local energy and environmental services
and was so financially sound that it even obtained
Sustainable and social development of energy
A report from the World Resources Institute in 2002 looked at the recent experience of six countries: Argentina,
Bulgaria, Ghana, India, Indonesia and South Africa. The report examined how the process of reforming the elec
tricity sector can support rather than hinder promotion of sustainable development, and achieving social and
environmental goals.'7
It identified major problems with the goals and processes of electricity reform in nearly all the countries which
they studied: “By focusing on financial health, reforms in the electricity sector have excluded a range of broader
concerns also relevant to die public interest. In this study, we have examined the social and environmental concerns
at stake in these reforms. We have found that not only are they inadequately addressed, but that socially and
environmentally undesirable trajectories can be locked-in through technological, institutional and financial deci
sions that constrain future choices.” The report put forward four clear recommendations for what it calls “a
progressive politics of electricity sector reform”:
“1. Frame reforms around the goals to be achieved in the sector. A narrow focus on institutional restructuring driven
by financial concerns is too restrictive to accommodate a public benefits agenda.
2. Structure finance around reform goals, rather than reform goals aroundfinance... Political legitimacy in a reform
program, tied to some innovation in mechanisms for raisingfinance, may be a more promising route than tailoring
reforms to short-term profit horizons.
12
3.
Support reform processes with a system ofsound governance. An open-ended framing ofreforms will reflect public
concerns only ifit is supported by a robust process ofdebate and discussion.
4.
Buildpolitical strategies to support attention to a public benefits agenda. It is important that public benefits advocates
strengthen political coalitions supporting sustainable development and counter thosefavouring parochial interests.
Box 2d
The growth of public services in Birmingham, UK
The city council of Birmingham, one of the major industrial cities of England, developed a great range of public
services during the 19th and 20'1' centuries, the years of industrialisation. Birmingham became famous in the UK
and abroad for developing municipal services as an instrument of social and economic policy. The growth took
place over a long period.
The chart below shows the development of the services provided by the city council from the council’s creation in
1838 to the opening of a municipal airport in 1938. It is taken from a booklet “Our Birmingham", produced in
1943, during World War II. Subtitled “the Birmingham of our forefathers and the Birmingham of our grandsons’,
it was intended to interest young people in the past growth of the city “and particularly in its future development".
youth groups in the poor, marginalized and violent
neighbourhoods of Cali concluded that “while there
was a sense ofsocial solidarity in these neighbour
hoods, this could not make up for the absence ofany
institutional presence.
an international credit rating. A government
proposal to privatise Emcali was opposed by the
local community in a vigorous national and inter
national campaign.21 Meanwhile, the local poor
needed more public services, not less: research into
THE
CITY
THE
OF
GROWTH
1939
COUNCIL —
MUNICIPAL AIRPORT OPENED
SLUM CLEARANCE CAMPAIGN BEGINS
1930
QTY TAKES OYER PUBLIC ASSISTANCE
BEGINNING OF BIG MUNICIPAL HOUSING SCHEMES
MUNICIPAL ORCHESTRA FOUNDED
1919
1916
MUNICIPAL SAYINGS BANK STARTED
BIRMINGHAM INAUGURATES FIRST TOWN PLANNING SCHEME IN THE COUNTRY
1908
WELSH WATER SUPPLY COMMENCED
904
04
CARE OF MATERNITY AND CHILD WELFARE BEGINS
CITY COMMENCED OPERATING THEIR OWN TRAMWAYS
CITY TAKES OVER SUPPLY OF ELECTRICITY
FIRST MUNICIPAL HOUSES
CITY TAKES OVER WATER SUPPLY
1875
CITY FIRE BRIGADE STARTED
1875
CORPORATION STREET CLEARANCE BEGINS WITH IMPROVEMENT SCHEME
1875
CITY TAKES OYER THE SUPPLY OF GAS
1874
FIRST MUNICIPAL HOSPITAL (for fever only)
FIRST MEDICAL OFFICER OF HEALTH APPOINTED
1872
1870
1867
1861
SCHOOL BOARD STARTED
ART GALLERY OPENED
PUBLIC LIBRARY STARTED
I856 ADDERLEY PARK OPENED
)8SI
THE IMPROVEMENT ACT incorporates powers of old local bodies in Town
Council, gives it complete control over roads, sewers, lighting and
sanitary arrangements, public buildings, markets and baths.
I850
FIRST CITY ASYLUM AT WINSON GREEN OPENED
ESTABLISHMENT OF POLICE FORCE
THE MUNICIPAL CHARTER INSTITUTES AN ELECTED COUNCIL
HUNDRED
YEARS
OF
PROGRESS
When you vote In the Municipal
Elections you take your part in
electing the Council which, through
its Committees, governs the city and
manages so many of the services
which benefit you. Some of these are
self-supporting, and the others arc
financed from the rates which are
levied by the Co-_*ncll on property.
As you can see from this chart, the
range of the Council’s work has
increased enormously since the Coun
cil was formed In 1838. It grew very
rapidly In 1851 when the Improve
ment Act was passed, and again in
the 1870'$ in the time of Joseph
Chamberlain.
BRINGS
Services were developed in response co che changing needs and changing social structure of the city. The citv
council itself was the democratic base2’, which then took on functions of law and order (police), cultural and
leisure functions (art gallery, library, orchestra, park), public health (asylum, maternity services), utilities (gas,
water, electricity), transport (trains, airport), education, housing, town planning, income support, fire, and bank
ing services. Among these were functions that the private sector had started on a commercial basis, but failed to
provide adequately to the whole city - water, sanitation, gas and, later, electricity.
Diversity of services
In almost every country the services provided by
government at national or local level include certain
categories — the social services of healthcare, educa
tion and some form of social security; the utilities
of water, energy and communications — including
post, telecoms, roads, railways, and air transport;
and the state security functions of police, justice
and defence. But the full size and scope of public
services is invariably a matter of political debate,
reflecting different economic and political interests
and priorities in the country at any given time.
Public services and state activity may cover a wide
variety of activities. They include spending on
culture, for example, with the support of public
interest broadcasting, arts festivals and galleries and
indigenous music, such as opera or classical music,
or the dance music of west Africa - successful
current bands from Mali, Senegal, Guinea and Zaire
all grew out of active state sponsorship of local dance
music in the 1970s. "At that time people didn't have
the means to make music. The instruments were expen
sive and the public had no money to buy records or go
to concerts - it had to be supported by the state. "24
There is no general principle for determining appro
priate sectors. State services at various times and
places include banking services, forestry, market
ing of dairy products, manufacture of drugs - in
the UK some pubs were state-run from 1917 until
the 1970s. In Morocco, a government agency
supplied chicks to chicken farmers until a World
Bank official insisted the state stopped this activ
ity. It left a gap which the market did not fill, so
the farmers' livelihoods suffered.25 Spending prior
ities may vary - defence spending in some coun
tries is relatively high: 3.2% of GDP in the USA,
3.1% of GDP in Iran; in others it is low: 1.1% of
GDP in Canada, 0.9% of GDP in Somalia.26
Some functions are traditionally supported by the
political right, such as the prioritisation of state
security. This is reflected in both the EU Treaty and
the WTO’s provisions, both of which provide that
state security considerations enjoy a blanket exemp
tion from the liberalisation and competition require
ments of these organisations.27 But political
14
perspectives vary across time and place too. At
different times, traditionally conservative parties in
the UK have supported, or even initiated, measures
which would horrify the early 21” century
Republican Party of the USA. For example, the
nationalisation of the telegraph by the UK Tory
government of Disraeli or the support of the
Conservative party for socialised healthcare after
World War II.
Some services may be viewed differently by differ
ent groups, for example the machinery of justice.
Business is most concerned that property rights and
contractual obligations can be upheld through the
courts, while other groups may be more concerned
about accessibility to justice for the poor, which
leads to greater emphasis on capacity-building and
on non-judicial justice processes.28 State expendi
ture on building and maintaining long-distance
road networks is also generally supported by busi
ness interests who usually seek to restrain state
spending in other areas.
Public goods, merit goods and
POLITICAL CHOICES
The provision of public services is not defined by
economic rules alone, but by a political process.
Some services - for example health and education
- can be provided through the market, but societies
prefer to deliver them through public services
because that produces better social results. These
decisions involve political choices which vary
between countries and over time, and are mediated
through public debate.
Economists use a concept of public goods, which
is defined in terms of those services which the
market fails to provide. This definition is of limited
use, because it assumes that the market forces are
the norm and public goods are deviant cases of
market failure, whereas the organisation of public
services is normal and global. On this definition,
defence is the only unambiguous public good - it
does not cover core services such as education and
health, which are referred to as ‘impure public
goods’ or ‘merit goods’, and so fails to explain the
general perception of the importance of public
provision of these services.2 ’
Actual public services are subject to variations for
both technical and economic reasons, as well as
political values. The provision of public baths has
been an important public health function at vari
ous times in different countries, but has become
less important in countries or cities where the great
majority of homes have bathing facilities. Others
may change with technology'; for example, libraries
offer Internet connections or music CDs as well as
the traditional function of lending books.
structure is taken into account34. Some current
government policies have levels of public spending
lower than they should be35; developing countries
with low stocks of capital, need public spending to
generate growth and avoid a ‘poverty trap’ ™; private
firms’ attempts to fill the gap are more costly and
less effective than public sector investment37, and
industrial innovation and development may be
more likely to come from active intervention by
politicians.38
2.4 Public services and the economy
A review of rhe global experience with use of the
private sector in energy reinforces the question mark
against the wisdom of leaving key investments to
the private sector. It concluded that “in a long-run
development perspective, fill-scale privatization ofgas
and power sectors in developing countries entails signif
icant risks, and therefore a flexible policy approach is
preferable to a rigid commitment to extensive liberal
ization”. 39
Supporting the economy
Neo-liberal economists take the view that expendi
ture on public services is a burden on the produc
tive sectors of the economy, and hence the role of
the state should be minimised, and those services
themselves should be provided as far as possible by
the private sector. Ironically, this was not the view
of Adam Smith, commonly recognized as the intel
lectual father of market economics. He saw public
education as a real bargain: “For a very small expense
the public can facilitate, can encourage and even impose
upon almost the whole body ofthe people, the necessity
ofacquiring those most essential parts ofeducation”™
History suggests Adam Smith was right to see public
services as a cheap asset to an economy. A major
factor contributing to Japan’s economic growth in
the industrial era was its high literacy rate (higher
than Europe’s in the 1 9,h century).31 During the
expansion of the post-WWII era after 1945, devel
oped countries generally relied upon provision by
the state of services through public expenditure. The
post-independence growth in many' developing
countries in the 1960s and 1970s was also sustained
by an expansion of public services. High literacy'
rates also contribute directly' to economic growth:
high provision of education and healthcare preceded
the growth of all the East Asian economies. The
state has taken an active role in many cases of
successful growth by' developing countries.32
The contribution made by public sendees to growth
is now being explored by' a number of economists,
arguing that public services have a positive effect
on the productivity of the whole economy33, espe
cially' when public capital investment in infra
The links with private consumption are also being
rediscovered. Both the provision and the pricing of
infrastructure services can have a huge impact on
consumer spending. A study in China found that
the demand for TVs, refrigerators and washing
machines would rise sharply if more households
were connected to water and electricity' — predictably
— but also that a cut of 10% in electricity' prices
would have a dramatic effect on demand for these
goods — six times as great as a corresponding rise in
income. The study' offers a simple conclusion which
is the opposite of the cost-recovery' policies advo
cated by bodies such as the World Bank: the state
should administer price cuts in electricity' as a way
of stimulating demand for manufactured goods.40
Kicking away the ladder
The political and economic orthodoxy' has devel
oped since the 1980s that the state should have a
minimal role in the development of national
economies, leaving as much as possible to market
forces, with minimal restrictions on trade or private
economic activity. The key' mechanisms for doing
this have been privatisation and trade liberalisation.
Both of these policies are applied generally across
all sectors, but have a particularly disruptive effect
on public services.
These policies ignore the historical experience that
the state played a major role in the economies of
countries which are now ‘developed’. Britain, the
USA, Germany, France, Sweden, Belgium, Japan,
Korea and Taiwan actively used interventionist
industrial, trade and technology' policies to promote
their own industries to ‘catch up’ with others. For
example, the USA had major tariff barriers until
after the end of World War II. When developing
countries used the same policies in the post-colo
nial 1960-1980 period, they grew much faster than
under later neo-liberal policies. These privatisation
and trade liberalisation policies thus have the effect
of protecting the dominance of multinational
companies based in developed countries by ‘lack
ing away the ladder’ of state intervention by which
they developed their own position.11
A concrete illustration of this can be seen in the
workings of the EU’s policies of liberalising the elec
tricity and gas sectors. The relevant directives
prohibit vertically integrated public sector monop
olies and require countries to split diese up and allow
generators and traders to compete for custom. These
laws apply to the transition countries of central and
eastern Europe, which have to adopt the EU laws
as a condition of joining. These countries are thus
obliged by the EU directives to break up their indus
tries, which they then have a powerful incentive to
sell. The buyers, in every' case, are established energy'
companies from Western Europe which had grown
to their present size as protected, often state-owned,
monopolies. As transition countries break up their
own electricity' industries in the accordance with rhe
dictates of liberalisation, they' are also breaking up
potential competitors to the western companies.
The result has been the creation of a concentrated
Europe-wide oligopoly - rhe German groups E.ON
and RWE, the French (state-owned) EdE GdF and
Iractebel (part of the private Suez group) have
become the owners of distributors and generators
in Hungary, Czech Republic and Slovakia.12
2.5 Taxation, redistribution and borrowing
Distribution of taxes and cross-subsidy
Financing public services involves raising money
through some form of taxation, insurance or charges
16
to pay' for the resources provided. Without these
tax-supported resources, the poor are forced to rely
on less redistributive forms of social solidarity, such
as financial support from networks of friends and
family, as has been observed in Cote d’Ivoire (Ivory
Coast).43
Cross-subsidy' is crucial to this process of develop
ing public services - otherwise the poor will never
be connected to services they can’t afford for them
selves. This subsidy has to come from other people
— either through taxes, or through prices which
make the rich pay' more for their services. Neo-liberals sometimes claim that this cross-subsidy is a
wasteful practice typical of the public sector, and
that one advantage of privatisation is that it gets rid
of subsidies. But in Buenos Aires, Argentina, the
private water company found that the only way it
could afford to connect the poor in the shanty
towns was by imposing a special ‘solidarity charge’
on middle class consumers, relying on the munic
ipality to provide the pipes and on the poor them
selves to provide their labour free. The private
companies running rail in the UK also rely on
government subsidies — Vivendi’s rail subsidiary
Connex successfully demanded anodier £58 million
from the government in December 2002 as a condi
tion for continuing to run the services. Despite
being given this subsidy, the company’s contract
was terminated for poor performance eight months
later.
Taxation is the core method of financing public
services. Taxation depends on the political legiti
macy of the state being entitled to collect money
from the income or expenditure or transactions of
people and businesses. The effect of taxation is
essentially' redistributive, so that the spending
powers of the wealthy is reduced, and in exchange
the services for the public in general, or the income
of the poor, are increased. Those most likely to pay
tax often seek to reduce the amount they pay, by
exploiting loopholes or by' political lobbying for
exemptions or allowances. Another main source of
financing public services is through insurance
schemes which rely' on risk pooling across the popu
lation. The least redistributive form of financing is
charges to users of the service — especially when
they are designed to recover all rhe costs of provi
sion, at which point they closely resemble the
market prices which would be charged by commer
cial providers. Even with charges, an element of
cross-subsidy can be built in, for example, users
may be charged little (or nothing) for the first 50
litres of water they consume each day, and more for
amounts beyond that.
Efficiencies of broad solidarity
Taxation on income at central government level is
the most efficient for redistribution because it draws
on the widest pool of potential contributors.
Taxation at local level can only use the income of
people living in the same area, which may include
a high percentage of poor people (high needs, low
resources) who cannot effectively finance their own
services. (Taxation on incomes at international level
would be even more efficient at redistribution — as
advocated by supporters of the Tobin tax.'1'1).
The advantages of a broad base include more efficient risk pooling in insurance-based schemes.
Health insurance was restructured in South Korea
in July 2000, when 350 health societies were merged
into a single insurance society. The multiplicity of
societies had led to inequity, financial instability and
reliance on government subsidies and inability to
cover the rural self-employed. In effect, the system
has now moved closer to the single NHS-style
system, like the UK, away from the pluralistic
German model which had previously been followed.
The reforms took place in a particular social and
political context, with the election of a new presi
dent, supported by progressive civil society groups.’5
Tax collection
There also needs to be a system for collecting taxes
which is seen to be fair, honest and inescapable, to
provide a reliable stream of revenue to the govern
ment. An efficient system of tax collection posi
tively affects a country’s ability to deliver public
services. A recent study found that it was one signif
icant factor explaining the difference between coun
tries’ provision of public services and the extent of
redistribution of income through benefits.’6
Establishing such a system in the public sector was
crucial to the development of modern European
states.
Under the ‘ancien regime’ in France and other
European countries, the wealthy and the well
connected avoided payment of taxes by discretionary
exemptions, and tax collection was in the hands of
intermediaries. As a result, state revenues were unre
liable and the burden unfairly distributed. The impor
tant advance was bringing tax collection under state
control: “Too much had been abandoned to the private
initiative oftax-collectors... The English reform, which
consisted ofgetting rid ofthe parasitic intermediaries,
was accomplished steadily and with discretion... The
first measures were the bringing under state control ...of
Customs... and... Excise"' This nationalisation of tax
collection was also a crucial step in developing a solid
revenue base to sustain public sector borrowing:
“Without this takeover ofthefinancial machinery ofthe
state... England would not have been able to develop as
she did a credit system that worked... the entire system
depended on the ‘credit-worthiness of the state... It
could. ..exist only thanks to the creation by parliament
ofnew sources ofrevenue... ”4S
Bonds, borrowing and financing investment
In virtually all cases of borrowing, governments and
public authorities can borrow money more cheaply
than private companies. This is true even in devel
oping and transition countries. Multinational
companies usually borrow money on the security
of the local project, rather than their own funds,
Source of funds
Domestic (inside country)
International
State
Bank loans
Bonds
Intermediate funds
International finance institutions
Government, national funds
Domestic banks
Domestic bonds
Municipal development funds
Aid agencies
International banks
International bonds
Development banks e.g. World Bank
Box 2e
Ahmedabad and municipal bonds
The following table shows some of rhe milestones in the development of the municipality of Ahmedabad, the
seventh largest city in India, three times the size of Birmingham. One key difference was that the development
of the council, like the history of the city, was closely linked to the history of the struggle for independence. The
municipality itself was suspended more than once as a result, before independence was finally achieved in 1947.19
1857
1858
1873
1882
1887
1890
1897
1910
1913
1916
1918
1921
1922
1924
1938
1940
1942
1946
1947
1948
1955
1956
1980
1988
1994
1997
1998
2000
Ahmedabad Municipality came into existence on 19th January.
Opening of first Library Himabhai Institute.
Ahmedabad Municipality recognized by statute and named as City Municipality.
Primary Education came under Municipal Administration.
Construction of first well by Municipality.
First underground drainage was laid in Khadia. Czar of Russia came to Ahmedabad.
Telephone sendee was started.
Municipality suspended first time.
Electricity Company started.
Town Planning Act implemented in the city.
Ahmedabad labor strike.
Ahmedabad Municipality was superseded because of non-co-operation movement.
Arrest of Mahatma Gandhi, sentenced to six years jail for treason.
Elected Ahmedabad Municipality resumed its working.
Opening of M.J. Library.
Opening of Gandhi Bridge and Infectious Disease Hospital.
'Quit India' movement. Ahmedabad Municipality superseded. Historic Textile strike.
Second Communal riot. Municipality reinstated.
Bus Transport Service under Municipal control, Independence Day celebrated.
Preparations for Electric Grid Scheme and expansion of Power House.
New Civil Hospital building. Milk scheme in Ahmedabad. Drainage in Ellisbridge area.
First Girls College (B.D.Arts College). First swimming pool opened.
Kotarpur WaterWorks project started with the help of LIC.
Drainage Project and Urban Project started for new area with help of World Bank.
Several administrative reforms and strict actions initiated by the Corporation to improve its financial
position. In-house computerization started.
Municipal Corporation got itself credit rated from CRISIL and got A+ rating which subsequently
increase to AA (so) rating
Ahmedabad Municipal Corporation becomes first corporation in the country to offer public bonds
for Public Subscription of Rs. 1000 million.
1) Widening of Gandhi Bridge. 2) Widening of Ellis Bridge. 3) Publication of Citizen's Charter for
the first time. 4) Inauguration of the ambitious Raska Water Project.
Source: www.ahmedabadcity.org
Improving finances: tax collection and municipal bonds 30
In the mid-1990s Ahmedabad Municipal Corporation (AMC) was in financial deficit, but needed to carry out
major improvements to services, especially investment in water and sanitation infrastructure. It set about a
programme of increasing the efficiency of its tax collection. The main source of revenue was from an ‘octroi tax
levied on imports into the city. AMC updated the rates of tax, employed extra collectors, stamped out corrup
18
tion - and as a result increased the amount of money collected by 60%. Within property taxes, the next major
source of revenue, die council created a computerised database, imposed sanctions on people who were not paying
and strengthened the collection staff- and tax collected increased by 55%. AMC also computerised, modernised
and professionalized its accounting system.
It then drew up a capital investment programme worth Rs 5,973 million (US$150m), of mainly for water supply
and sewerage schemes, based on financing 30% of it from revenue and raising the rest through loans and a munic
ipal bond. In 1998, Ahmedabad became the first city in India to issue a municipal bond, which was given a credit
rating of AA. The most significant investment was the Raska Project, a bulk water supply scheme which now
supplies water to 60% of the city's population. It was completed in a record five months, and financed 20% from
the proceeds of the bond, with the other 80% coming from a loan from the national government’s Housing and
Urban Development Corporation.
Other Indian cities followed suit: by 2002 six other municipalities (Bangalore, Ludhiana, Nasik, Nagpur, Madurai
and Indore) had issued bonds worth Rs. 550 crores: (one crore is 10 million) all of which were over-subscribed?'
and so the interest charged is ultimately related to
local conditions and government guarantees, not
the multinationals’ profitability. The amount that
banks and investment companies will be prepared
to lend to governments is, however, limited by their
assessment of governments’ credit-worthiness.
Public authorities can raise funds to finance invest
ment from the same range of sources as used by
private companies. The table below shows a simple
categorisation of these sources. Money borrowed
requires interest payments and, ultimately, the loans
to be repaid through another source of finance,
either taxation or charges. The same questions about
distribution of these burdens arise.
Public authorities have for over a century raised
finance themselves, through borrowing or through
issuing bonds. This is done not only by govern
ments, but by municipalities; not only in devel
oped countries, but in developing ones, as the case
of Ahmedabad demonstrates (see box 2e).It is not
necessary to have a multinational as an interme
diary.
3. Governance, accountability
and participation
Public services depend on a political system capa
ble of organising the services. To deliver a respon
sive service, the relevant public authorities need to
be made accountable to the population, and enable
and encourage citizen participation in the planning
and prioritising of the system. This section looks
at these governance issues:
- the need for state capacity to deliver services
- the structure of responsibilities between central
and local government
- the need for active participatory politics
- the role of public service unions.
3.1 State capacity
Delivery of public services requires state capacity:
there must be a political authority' with the capac
ity to organise, finance and deliver universal serv
ices. This is as true for local authorities in rural
sub-Saharan Africa as it is for the nation states of
Europe and North America — any government
needs the authority and resources to tax and employ
in order to deliver services. This is difficult for neo
liberals, who believe strongly in a minimal role for
the state, and prefer a minimalist state, with any
functions sub-contracted to the private sector. The
role of the state is then simply to regulate (or better
still appoint an independent regulator).
But the problem is that a state without rhe capac
ity' to deliver a service does not have the capacity to
regulate multinationals either, as a number of reports
on the water sector have shown. A study of a failed
attempt to create public-private-partnerships in
water in South Africa concluded that 7/zcZ- ofpublic
sector capacity is, as the BOTT experience demonstrates,
an important reason not to privatise, rather than a
justification for public-private sector partnerships”'1
The same has been said in a report to an OECD
conference on the water sector in the countries of
the former Soviet Union: “The capacity ofmost NIS
governments to effectively regulate private sector partic
ipation, particularly the more extensive forms, is an
important constraining factor on developing public
private partnerships. ”>J A general survey of water in
developing countries observed that “In many coun
tries, regulatory structures are still embryonic, in others
they lack transparency, while in others they appear to
be excessively complex in their organisational structure,
laying them vulnerable to political interference. In
particular, the study has identified questions concern
ing the limited accountability ofthe essentially 'polit
ical' nature ofthe regulatory process associated with
the French-style concession contracts”.''1
It is important to recognise the actual and poten
tial achievements of nation states in delivering serv
ices, as otherwise an analysis of the failings risks
being simplistic and formulaic. In the case of energy'
in India, for example, the World Bank has blamed
problems on excessive state presence, and so
proposes the introduction of the private sector as a
solution. But this approach ignores the real, success
ful achievements of public energy systems. By
contrast, an analysis by Indian NGO Prayas firmly
identifies the remarkable achievements of die system
before identifying, equally sharply, its deficiencies:
“ the existing model, based on state ownership, selfsufficiency, and cross-subsidy to agriculture and house
holds. .. In 50 years, capacity has increased 55 fold,
with 78 million customers, and halfa million villages
connected. There are however limits to these achieve
ments, and realproblems in the sector: half the popu
lation is still unconnected, and there are power
shortages, weak accounting and metering and huge
financial losses. ”55
On the basis of this analysis, Prayas was able to
identify the solution as lying in greater political
activity and participation, not less, in advocating
the TAI'* approach.(transparency, accountability and
participation — see section 3-3).
20
3.2 Central and local government
Complexity of relationships
Simple generalisations on the relationship between
central and local government can be misleading.
The case studies of successful initiat ives in Ceara
state, Brazil, for example, (see below) demonstrate
that even apparently decentralised projects may
involve significant initiatives and extensions of
power by state government. The dynamics of the
relationships between central and local governments
are affected by the historical and economic envi
ronment, as well as external factors such as consult
ants’ reports. A study of Caribbean countries,
including Trinidad and Tobago, the Bahamas,
Martinique and Suriname found that factors affect
ing health reforms included the countries’ own
historical background, international agents such as
the Inter-American Development Bank (1ADB),
which promoted restructuring by providing funds
for specific reforms, and consultants, whose advice
was frequently based on ‘international solutions’
(which in practice meant the changes introduced
in the UK by the Thatcher government) separat
ing purchaser and provider functions and devolv
ing management.56
Simple devolution of responsibilities to local govern
ment, without devolving the necessary financial
and human resources, limits the ability of local
authorities to deliver public services, especially in
situations of economic growth and social restruc
turing. In South Africa, for example, new munici
palities have been created, unifying areas that were
separated under the old apartheid regime, with the
objective of raising standards of service for commu
nities that were previously without. But the success
of this is constrained because central government
is not expanding the financial contribution of
central taxes to the level necessary to support local
responsibilities.
In China, new national policies in fields such as
health, education and environment are imple
mented by local authorities in a way that is “neither
uniform nor transparent”. Municipalities have new
regulatory responsibilities for ensuring services in
a context of rapid economic growth, and so
economic and social development are more locally
determined than is apparent from the formal allo
cation of responsibilities. This challenges their finan
cial capacity, despite the availability of taxes on local
household and rural industrial profits: "local solu
tions and resources have to be found to deal with
social and environmental issues."57
Transition countries and issues in central
and Eastern Europe
For the countries in transition from communist
regimes, there are particular problems. The central
isation in the former Soviet Union and the former
regimes of eastern Europe had stifled democratic
mechanisms, created inefficient and unresponsive
systems for managing most sectors of the economy
and led to economic stagnation and political corrup
tion.
Even in other former communist regimes, the issues
may be different. The Chinese state remains under
the control of the communist party, but the econ
omy is growing at an explosive rate, local govern
ment is changing rapidly, and the role of public
services is changing. Cuba, a much smaller coun
try isolated by an economic boycott, has neverthe
less managed to maintain an impressive public
healthcare system.
3.3 Political activity and public
participation
The collapse of the regimes at the end of the 1980s
brought an opportunity to restructure and develop
the political and economic systems, including public
services. But it should not be assumed that all aspects
of these services should be changed. The previous
system of financing health services from taxation,
for example, is demonstrably a better way of running
public healthcare than the USA-style private insur
ance schemes which accountancy firms and manage
ment consultants have advised these countries to
adopt. The regional water authorities typical of east
ern European countries enjoyed economies of scale,
similar to those enjoyed by the UK regional water
operators (before and after privatisation).
Decisions over the shape and size of public services
are unavoidably political. Political processes often
happen in private, with decisions being made
behind closed doors. This has been one weakness
of public sector organisations, especially those based
on a closed centralist model, which deliberately seek
to keep state decisions secret and to exclude the
possibility of public influence on the result To
obtain better and more democratic decisions and
accountability, there needs to be increased public
participation and openness in the decision-making
process. Political activity needs to be actively encour
aged, especially among the poor and disadvantaged
who are frequently excluded from decision-making
processes in developing countries, where donor
agencies and government officials collaborate in a
process diat excludes poor people/'5 Women are also
commonly excluded from participation for cultural
or family reasons, yet they bear the greatest burden
of inadequate services.
This point was made bluntly in a report by a lead
ing World Bank water official in 1995: “when one
examines the process ofreforming the Eastern German
water and sewerage industry after reunification... it
would appear that the guiding philosophy was simply
to make “them" (the East) look like “us" (the West).
... The uncritical adoption ofthe western model in
Eastern Germany has had unfortunate consequences
in the East. The regional water companies in the East
(the WABs) have been disbanded as a vestige ofcommu
nism. The result has been the proliferation ofhundreds
ofsmall, uneconomical municipal companies which
provide poor quality services at very high costs. ”58
Outstanding examples of new forms of governance
aimed at increasing participation come from the
south, from Brazil and Kerala state in India (see
boxes 3a and 3b). The Brazilian model of partici
patory budgeting is now attracting attention in
Europe. More than 100 Italian municipalities
(including Naples and Venice) are setting up an
association of local authorities which promotes the
introduction of participatory budgets, the explicit
model being Porto Alegre. Practical experiments
are being set up in Pieve Emanuele, a small
commune in the metropolitan area of Milan, and
in Grottammare/’1
In the USA, there is a long tradition of enabling
democratic decisions to be made by local participa
tion. Systems enabling local public decision-making
on energy policies were set up in the 1930s in west
Box 3a
coast states (see box 3c). Referenda can be triggered
- two recent examples were votes in New Orleans
over a proposal to privatise water62 and proposals to
municipalise energy in cities in California, follow-
Participatory budgeting in Porto Alegre, Brazil
The Participatory Budget process (Orfamento Participative) - OP) in Porto Alegre is a form of direct democracy,
allowing citizens to participate in the neighbourhood they live in or within a particular thematic area and to
choose which of their priorities the municipality should implement. It originated in 1989 when a new local
government was elected, committed to a programme of tax reform and expenditure, which started using public
meetings to ensure broad support lor the implementation of this programme.
The OP has significant effects in increasing municipal revenue. Unlike most municipalities in Brazil today which
are dependent on national government resource allotments, municipal revenue in Porto Alegre constitutes more
than 50% of the total. This has come mostly from easier identification of where the taxes would specifically come
from.
OP is a deliberative and transparent process: decisions made are documented, published and strictly implemented.
The internal rules of the OP are established by participating citizens, making the process self-regulating. These
features of the OP had fostered the emergence of a non-state public sphere.
As in many poor countries, state institutions in Brazil, including banks and state corporations, have historically
attended mostly to private and particularistic interests, and not to the general public welfare. .. .now the number
of people that participate in the OP is growing year after year, and the number of Associative and Resident Entities
registered in the OP process today number about a thousand... Priorities became more reflective of the needs of
the communities, which is a direct opposite of priorities established by previous governments. It is one reason
why 99.5% of Porto Alegre’s population now enjoy treated water, and 84% - the highest in Brazil - are connected
to sewerage.
...The system has been described as meeting three key public objectives: people’s need for a
sustainable service, the acquisition of a concern for the sustainable use of the natural resources, and
the permanent engagement of citizens in the management of public funds”.65
Box 3 b
Kerala (India) - participative planning
One country where such approaches are being applied is India, which has a distinctive history of participative
democratic structures. An outstanding example is the state of Kerala, in South India, where a new structure,
based on massive public participation, has been developed66.
This has been acclaimed even by the World Bank, which produced a report stating that: “Kerala's decentralisa
tion programme is probably the largest of its kind in the world. Three million people (10 per cent of the State's
population) take part in meetings. This is a far-reaching, innovative and courageous new approach to rural devel
opment and local governance... It reflects a profound commitment to a total change in which governments govern
to empower disadvantaged groups to voice their demands, and to make institutions responsible and accountable
to them.”
The system includes massive devolution of funds to local meetings, which are required to draw up plans for
deploying them, combined with a systematic effort through publicity to maximise public attendance, resulting
in rhe remarkable public turnout. The state devolved 40% of its budget, organises skilled professional support
22
to the local panchayats, and provides training for every one of the thousands of councillors elected under this
system
Democratic principles are central to the structure itself, not added on. The eight key principles include: “maxi
mum direct participation ofthe people; accountability (continuous social auditing ofperformance) and transparency
through the right to information. ’’The danger of corruption, which was a problem before the new system, is dealt
with by a total commitment to transparency and openness of all documents and decisions: “Total transparency is
the only way to check the danger ofdecentralisation degenerating into decentralisation ofcorruption. All documents on
beneficiary selection, reports and minutes ofmeetings and all documents on works undertaken by the local bodies through
contractors and beneficiary committees including bills and vouchers are public documents. Copies are available on
payment ofa fee. "
Box 3c
Democratic votes for public power utilities
in Washington State, USA.
Electricity supply began in Washington State in the 19'h century, as elsewhere, with some private companies.
From 1891 municipal utilities began to develop in towns and cities, including Seattle. Rural residents became
interested in obtaining electric light, power and water service under a similar arrangement, and a state wide voter
initiative, supported by unions and others, won the support of 61,000 signatories, double the minimum required.
Although the state senate refused to enact the law in 1929, it was automatically referred to a direct vote of the
people of the state, was passed by a state-wide vote of 152,487 to 130,901 and became law in 1931.
That law provides for the establishment of municipal corporations that encompass elements of private corpora
tions, rural electric cooperatives and municipal utility systems. A People’s Utility District (PUD) has the basic
business structure of a private corporation, with a board of commissioners who serve in the same capacity' as a
board of directors; it has the public interest benefit of a non-profit operation, with the low cost public financing
methods of a municipal system; and it incorporates the area coverage concept of utility sen-ice, as practiced and
promoted by the rural electric cooperatives. The law does not make this system compulsory': it enables PUDs to
be set up on the initiative of people living in an area.
Today, there are 28 PUDs in Washington state, providing electric, water and/or sewer service. The majority' of
the population of Washington, more than 60%, is sen'ed by PUDs (28%), municipal utilities (21%) and co-ops
and mutuals (5%).67
A similar system was adopted by neighbouring state of Oregon, whose State Legislature passed an amendment
to die Oregon State Constitution in 1931 which also allowed for the formation of people's utility districts (PUDs).
Oregon now has six PUDs, supplying 9% of the state’s electrical needs: four were formed in the 1940s, and two
in the 1980s/'s
Box 3d
Political action
Transparency, accountability and participation (TAP) in India
An Indian NGO, Prayas, based in Pune in the state of Maharashtra, has made a significant impact in opening
up decision-making in energy to public debate. Prayas calls the principles of this process transparency, account
ability and participation - TAP - and describes the process it initiated:
“The Maharashtra Electricity Regulatory Commission (MERC) followed the TAP principle to facilitate a hike in the
electricity tariffduring 1999-2000. The MERC published a gist of the proposalfor a tariffhike in scores ofnewspa
pers all over the State. In response, it got a total of468 objections, in the form ofaffidavits or plain letters. This is the '
stage at which the Commission made a vital move. Instead ofinternally processing these objections, it launched a process
ofpublic hearings all over Maharashtra - five hearings at divisional headquarters and three in Mumbai.
Prayas and other groups, like the Mumbai Grahak Panchayat, got intensely involved in providing information and
pushingfor rigorous transparency. Thus the open-to-public proceedings produced a wealth ofdetailed information which
compelled the MSEB to admit the errors in its own data, projections and analysis. Over a period ofsix months the
MERC, the MSEB and the public virtually worked together to formulate a tarijfhike of 6.5 per cent, instead ofthe
original MSEB proposalfor 18 percent."1''’
In 2002, Prayas and the trade unions developed an alternative plan for the restructuring of MSEB. The plan
outlined a new ’Public Control Model’ for the MSEB, involving 3 key parties - the State Government, MSEB
itself, and the unions - and a set of agreed elements:
- Concrete and Quantitative Targets for Performance Improvement (bill recover}', reduction in transmission and
distribution losses, availability, etc)
- Operational and Procedural Measures (TAP Participator}' Process, regulation)
- Commitments about Duties and Obligations (government to pay subsidy on time)
- Disincentives and Penalties. "
Box 3e
New York State (USA):
management-union cooperation systems
In New York State, USA, a number of councils in the 1990s have carried out restructuring programmes which
have involved a range of formal involvement with trade unions, from labour-management committees to a
complex system such as total quality management (TQM).
According to a study of these initiatives73, this was based on a recognition of rhe strength of organised unions,
and thus the attractiveness of a ‘partnership’ approach: "High levels ofpublic sector unionisation in New York State
make internal restructuring through labour-management cooperation an especially important alternative". There were
clear benefits experienced as a result of this approach: “These cooperative workplace structures improve communi
cation and broaden participation in decision making, leading to greatly improved management-union relations and
employee morale. ”
ing the energy crisis of 200163. There are also
European traditions of participation through direct
citizen votes on propositions. Recent uses of these
initiatives in Switzerland and Germany have resulted
in votes against privatisation proposals.M
3.4 The role of public service unions
Public service unions frequently play an active role
in the political process concerning public services,
for a number of reasons. Firstly, the representative
function means that they seek to improve their
members’ working conditions by influencing their
employers - for public service unions that means
the state. Secondly, there is a strong element of
professionalism in most public service unions, so
24
they express a collective view of their members’
informed and experienced advice on how services
can best be run. Thirdly, they are part of wider trade
union movements which have historically been key
agents in promoting the development of public
sendees to enhance the lives of working people and
their families. Fourthly, they may often have formal
relationships with political parties. For example, in
many developing countries the trade unions were
supporters of parties of liberation. 1
They are an obvious element of civil society that
should be expected to be active in political debates
on public services, yet they are sometimes deliber
ately excluded from discussion. Many consultants,
development banks and academics either ignore
Sweden: come on!
One of these approaches originated in Malting, Sweden. The restructuring not only involves trade unions and
workers in a central role, but was devised by trade unions, and is referred to under the simple slogan of ‘Koman!’
(which means ‘Come on!’). The Koman approach is to place information and planning of work and control of
resources in the hands of the workers: “The members become researchers in their own jobs. They discuss how to
improve quality, where responsibility lies and should lie, what are their training needs. They measure the costs ofspecific
tasks, so that each person knows the costs associated with their own job. ’’The results in Malung were to reduce costs
and also to change and reduce the traditional role of the management pyramid. '
workers’ unions, or actively warn against them as
‘dangerous’. At the World Water Forum in The
Hague in 2000, the leading Dutch water research
institute, I HE, presented a picture of stakeholders
in water which included private contractors but did
not even mention water workers’ or their unions.
This is a potentially damaging blindness. There are
obvious reasons why some bankers, politicians and
companies should feel that their interests are not
always endorsed by the unions, but in an open
democratic process these conflicts are to be expected
and encouraged. The strongest opponents of public
service unions seem ready to describe as ‘partners’
multinational companies whose commitment to
the services of any country can only extend as far
as the profitability of that service to its sharehold
ers. It indicates a lack of understanding of the
importance of workers in public services.72
4. Problems, reforms and the future of
public services
Public services cannot remain static and unchang
ing. They have to deal with internal and external
problems. The favoured solutions of many govern
ments and the World Bank may create worse prob
lems, however. To effectively address the issues, the
role of labour needs to be recognised, not treated
as a problem. Finally, public services have to develop
to face an increasing role in the future, with new
challenges, an increased demand as countries
develop and a more international dimension. This
section looks at:
Responding to change: public services are not
perfect and have to be improved, but more damage
can be done by ‘recipes’ that insist on structural
reforms to introduce privatisation; services may be
especially damaged by reforms driven by a wish to
cut government budgets.
Private sector in perspective: empirical evidence
shows the private sector is not necessarily more effi
cient, and multinationals may bring more prob
lems; attempts to use the private sector to raise
investment capital have proved less successful in
practice than in theory.
The role of labour matters: present day innovations
confirm old lessons that proper staffing levels, train
ing and pay are ways of positively delivering better
services.
The future of public services: future economic
development means that public services will become
an increasingly important part of the world econ
omy; they need to expand to deal with new chal
lenges; and international institutions and activity
will play an increasingly important role.
4.1 Responding to changes and problems
Public services need to deal effectively with a
constantly changing environment, so there is a
constant need for change. Changes may be needed
to reflect changing demographics, such as the ageing
of the population in most European countries, or
the impact of AIDS in sub-Saharan Africa; or
changing economics, such as the extremely rapid
growth in China; or technical developments, like
the Internet.
Some problems faced by public services are due to
changing politics, for example a reduction in finan
cial resources made available by governments
focussed on reducing public expenditure or borrow
ing. Some of the impact comes from the policies
of global institutions, notably the IMF, World Bank
and WTO.
Other problems are internal: when services have
become ineffective, unaccountable or badly
managed: where there is corruption or ‘capture’ of
regulators or politicians by companies; where serv
ices are burdened with ‘ghost workers’ created by
clientelist regimes. Such problems must be faced
and acknowledged, not denied.
This sub-section looks at public sector reforms, and
some common problems, mostly arising from forms
of commercialisation.
Public sector reform
Reforms can take place within the public sector,
and efficient services delivered. Many developing
countries have extended the coverage of their water
and electricity systems through the public sector,
Box 4a
providing an affordable service, and have improved
their efficiency in the process. For example, the
rural electricification in South Africa7’, the exten
sion of water and sanitation in mega-cities such as
Sao Paulo or their improvement in poor countries
like Malawi’6, or the maintenance of an efficient
and financially viable water system in extreme diffi
culties, such as in Ramallah in the West Bank77.
Different structures may be a strength - water is
usually based on municipal responsibilities, which
builds on the advantages of local responsibility and
capacity. However, in some countries, nationallybased operations have sustained development of
water systems beyond urban centres. This would
be threatened if responsibility for water is broken
up.78 Established sendees in older countries can also
adapt and develop their public service roles in new
contexts, as shown in the examples from Italy,
Germany and France (see box 4a).
Modernised public services in Europe
The municipality of Cremona owns a multi-sectoral utility, Azienda Energetica Municpale di Cremona (AEM
SpA), which operates local public transport services, water, gas, electricity and the disposal, recycling and treat
ment of waste. AEM has developed an integrated waste management system, under which different types of
refuse are collected separately. Organic waste and metals (35% of total waste collected) are recycled; 60% of waste
is incinerated to generate energy in a state-of-the-art combined heat and power plant, and 5% is dumped at
controlled sites.To improve its performance on selective waste collection, AEMSpA introduced an incentive
scheme called “Ciclo and Riciclo”. At each refuse collection centre, points are awarded for each kilo of waste
which is sorted into separate categories, and these points can be used to gain discounts on public transport and
parking season tickets or to obtain a range of gifts that includes televisions and bicycles.8-1
T he French post office, La Poste, has 17,000 post offices, the largest network in Europe. It operates 1,048 offices,
with 25,000 employees, in deprived urban areas where it is often the last service providing a link with the outside
world. A new urban policy agreement signed between La Poste and the French state in March 2002 includes
provision for training, career development and recruitment from socially excluded groups.81
The Italian post office, Poste Italiane, has created a subsidiary to develop public Internet services. Apart from rhe
usual services offered by commercial IT companies, Postecom has introduced three new services: on-line payment
of public utility invoices, free public internet access and email facilities at Post offices, and electronic versions of
traditional post office services, an officially-certified secure gate for on-line shopping services.8'
Stadtsparkasse Koln is a non-profit financial services company owned by the municipality of the City of Cologne,
Germany. It has 34,000 current accounts, of which one-third are held by people receiving social security benefits.
SK's network of branches and staff provide these and other poor sections of society with access to financial advice
which they are otherwise unlikely to receive. SK operates under a universal service obligation to accept any customer,
which does not apply to commercial banks. SK also supports small and medium enterprises (SMEs) through its
loans and has a department responsible for “the promotion of new enterprises”, advising about 500 enterprises.86
26
The development of a new public service manage
ment needs to continue, based on the principles of
transparency, accountability and participation.79
Public service provision has to make full use of avail
able knowledge, both in the sense of other experi
ences of delivering the service, and in keeping
abreast of new techniques and methods. This will
include formalised meetings to share experiences
and best practice, a ‘mutual self-regulation’: one
example is the practice of the Dutch municipal
water companies who annually compare each ’others
experiences.80 Public accountability mechanisms
also have a positive role to play, to draw on public
knowledge and perception of performance: the
Maharashtra Electricity Board gained important
insights into their own approach as a result of a
public debate.81 It also involves training and discus
sion between public service managers and workers
on the one hand and the wider academic and tech
nical community on the other.82
of computerised procurement procedures in tran
sition countries, for example, can help reduce costs
and stimulate local enterprises.89
Restructuring by recipe
One major category of problems facing public serv
ices in many countries is ‘restructuring by recipe’,
where structural reforms, invariably involving some
form of privatisation, are introduced as a solution,
regardless of the actual problems. This may destroy
the structural strengths of the system and fail to
solve the actual weaknesses. A good example is the
railways in the UK, which suffered from chronic
under-investment and lack of capacity: the privati
sation introduced in the early 1990s has made the
problems worse and, by fragmentation of respon
sibilities amongst commercial contractors, made
solving them harder.90
Restructuring is not always necessary or appropri
ate. A recent study of the Danish health system
observed that it has rightly avoided the fashion of
The public-private interface
introducing market forces — it is not broken, so
Part of this modernisation process involves the inter
there is no need to fix it. Instead, its very structure
face between the public sector and the private sector.
is a strength which provides opportunities for
This is managed through the procurement systems
further improvements: “funding is very largely
for awarding contracts for supply of goods, etc.
public... a single dominant authority, i.e. the count)',
Without privatising the service itself, the value of
which makes planning easier... Low levels ofpatient
these contracts is large, and both efficiency and
payments and the smaller size of the private sector
equity gains can be made through transparent and
reflect Danish ‘solidarity’ and promote equity... the
efficient procurement.
GP blended remuneration system with capitation and
Public equity and employment policies can be I fee for service is a major strength. The fact that the
system has such potentialfor technical and allocative
pursued. For example, procurement rules can
efficiency and also equity but is not fully exploited
require no gender or racial discrimination in
suggests
the need for more investment in health serv
employment, and even affirmative action to
ices
research"?'
promote equal employment (as developed by the
USA government after WW1Ithey can require
Fiscal pressures
the payment of wages equivalent to public service
The primary motivation, worldwide, for privatisa
conditions; or use the sanction of debarment to
tion of public enterprises is to cut public deficits
enforce anti-corruption policies, as the World Banks
or reduce debt levels. Selling the services generates
procurement rules provide.88
cash which will improve the budget. This may be
Many countries have introduced electronic procure
needed for local reasons, if there is a special local
ment systems since it is possible to make major
problem (for example the fiscal crisis in Berlin in
gains in transparency and efficiency with a relatively
the late 1990s, which was the justification for sell
modest investment. All public procurement in the
ing the gas, water and electricity operations) or a
EU now has to go through an electronic portal, the
national policy to cut back the public sector: or a
Tenders Electronic Daily ( FED). The introduction
requirement of IMF structural adjustment poli
cies."-’ This may be the only motivation for public
private partnerships in some sectors - a Deloitte
consultant told a conference on energy in 2003 that
“It is getting harder to find political leaders that are
willing to truly champion privatization for reasons
other than to generate cash proceeds.”’-'
But it can lead to policies which damage the serv
ices involved, as recognised in a paper from the
World Bank itself: “In many countries, privatiza
tion transactions are spearheaded by the Ministry of
Finance, which tends to view the process in narrow
transactional terms, with the focus on maximizing
the fiscal revenuesfrom the asset sale. This is unfor
tunate because there are some important trade-offs
between the sale value of the assets, and the down
i
stream economic and social impacts ofthe reform.
For example, revenue considerations point toward
keeping service tariff high, minimizing rollout obli
gations, postponing the introduction ofcompetition,
and overlooking many of the details ofregulation.
However, experience shows that these are precisely the
strategies that are likely to be most damaging to the
poor... ”M
The global institutions:
WTO, IMF and World Bank
A major way in which these policies are transmit
ted globally is through the major global economic
institutions — the WTO, IMF and World Bank.
• The World Trade Organisation (WTO), through
the General Agreement on Trade in Services
(GATS), is creating potential extra pressure for
privatisation of public services, including health
care'''. The key element in GATS is for countries
to make ‘commitments’ to open a sector to trade.
Countries are not obliged to open sectors, but can
do so, and can be requested to do so by others.
The EU’s negotiators in GATS have requested
many countries to open their water services.96
• 1 he IMF lays down strict conditionalities, which
may include requirements on public services, for
a country receiving its financial support. The
conditionalities for Tanzania, for example, have
included requirements to charge for hospital visits
and to impose school fees.”
28
• The World Bank actively promotes privatisation
as a matter of policy in many public services,
including water and energy. The bank has a divi
sion called the International Finance Corporation
(IFC) which can only invest in the private sector,
and so all its investment in healthcare in Africa,
for example, has been to support private hospital
ventures and similar enterprise.’''The bank also
imposes de facto conditionalities on many loans
- for example the prospective Ioan to Ghana for
water is in effect tied to Ghana privatising the
system in Accra.”
Cherry-picking: separating the rich
One of the greatest source of weakness for public
services is ‘cherry-picking’, where the affluent are
able to purchase better quality services for them
selves alone and avoid contributing to the public
service. It undermines the financial solidarity on
which public services are based, undermines the
political consensus needed to sustain public serv
ices, and draws resources away from those services
into a consumer-oriented market. It may be exac
erbated by cutting back of resources dedicated to
public services, which reduces the quality of the
public service and encourages those who can pay
to buy themselves more resources from the private
sector.
Social Watch identified this process in Costa Rica:
“where quality public education has been a major
factor in social equity and high living standards, a
private school boom now draws better-off students
away from public schools with declining
resources... Thus, education has changedfrom being
a mechanism for social mobility to becoming an instru
ment ofstatus and exclusion. in Malaysia, where
“two systems have emerged: higher quality private
education for those who can afford it and poorer qual
ity public education for those with low incomes”; and
in Germany’s health care system, where richer
people are allowed to opt out of the statutory health
insurance funds and buy private insurance more
cheaply, so that the statutory' funds have to carry a
larger proportion of higher cost members.'00 This
development of two-tier services whereby the rich
pay for their own services, privately, and the poor
are left to pay for their own treatment through an
increasingly poor public sector, which thus falls into
a downward spiral. As a result the private sector,
for example in healthcare, has grown, even in the
poorest countries in sub-Saharan Africa.101
4.2 Private sector in perspective
Public services necessarily have an economic and
political interface with the private sector. To vary
ing degrees, public services use goods, construction
works and some services from private companies.
These relations need to be dealt with through
procurement regimes, which lay down transparent
rules for buying in these goods (see above). But the
wave of privatisation, or public-private partner
ships, goes beyond this and uses the private sector
to restructure services in a commercial framework.
This ideology-driven process claims to increase effi
ciency and provide investment capital, without
affecting the services themselves. Experience shows
that these claims are not justified, and that they
may create extra problems.
Relative efficiency of public and private firms
It is often assumed that the private sector is ‘obvi
ously’ more efficient than the public sector, but
both empirical evidence and theory suggest that
this assumption is wrong. Finnish economist Johann
Willner reviewed empirical evidence from compar
ative studies in a range of sectors, which showed
that public ownership is no less efficient in more
than half of the studies. Willner’s theoretical analy
sis also concludes that political intervention may
actually produce better results in oligopolistic
markets, even if politicians are biased in favour of
higher output and/or employment, and even if it
creates ‘over-manning’.102
One example of public sector efficiency is health
care. The USA’s commercialised system costs 13.6%
of GDP, while die UK’s national health system costs
only 6.7% of GDP, yet the infant mortality rate in
the USA is worse than in any other OECD coun
try.103 One reason is that up to a quarter of health
spending in the USA goes on the bureaucracy of
payments and billing. In electricity, a worldwide
comparison of public and private companies found
that the ownership made little difference.101 The
public sector may even be better at delivering
productivity improvements. A review of the indus
tries privatised by the Thatcher governments in
Britain found that most of the improvements in
productivity came before privatisation, not after
wards, and municipal refuse collection services
improved as much as privatised ones.105 Examples
of public sector efficiency can be found even in the
poorest countries: the water authority in Lilongwe,
Malawi, reduced its leakage rate to 17% in the
1990s10*’, better than Thames Water managed in the
UK in 2001107.
By contrast, the legitimacy provided by public
ownership is a real strength. During a drought in
the UK in 1976, when water was under public
ownership, there was an appeal for the public to
cut consumption of water — the response was a
reduction of about 25% in usage. But in the simi
lar drought of 1995, the public made very little
reduction in their usage in response to appeals by
the privatised water companies, because the
companies were seen as greedy exploiters of the
water monopoly and so not entitled to public
support.108
Unequal bargaining power
A series of economic gains can be made by the
private sector at the expense of the public sector
and the public itself, during and after the process
of privatisation. This is because privatization is “typi
cally characterized by asymmetric bargaining condi
tions. In the moment ofdivesture, public capital was
transferred to few rich investors (domestic or foreign)
at particularly favourable conditions. ... In the cases
ofBrazil and Argentina, national governments were
cash-stripped, trying to sell the utilities as fast as possi
ble to overcome political and social opposition... Besides
reaping many ofthe benefits stemmingfrom the pre
privatization efficiency-enhancing restructuring still
under public ownership, new private owners were able
to capture quasi-monopolistic rents, thanks to further
labour shedding, price increases, and access to state of
the art technolog)’, which was not achievable under
the chronically underfinanced public regime. ”
A central problem is the relative lack of capacity of
public authorities to deal with generally large multi
national companies focussed on profit objectives.
In France, which has the longest experience of such
concessions to build roads, water works and other
infrastructure, an official report observed that the
system "left elected councillors on their own, without
support, to deal with conglomerates wielding immense
political, economic andfinancial power. ””°
Pakistan’."'' Instead, the army took over the
running of WAPDA, banning trade union activ
ity as they did so, in what turned out to be a dress
rehearsal of a subsequent military takeover of the
entire country.
The impact of strategic behaviour by companies
has been dramatically demonstrated in a global
study of infrastructure construction contracts for I
railways. The study found that the actual final cost
of these contracts was always consistently far higher
than the original estimates. A statistical analysis
confirmed that the one coherent explanation of this
phenomenon is “systematic lying” on the part of
the companies.1"
Privatisation of many services generates valuable
long-term contracts which in turn create incentives
and opportunity for corruption. MNCs have been
engaging in international corruption for years,
provoking legislative action by OECD countries to
try to and curb this. The World Bank has procure
ment guidelines, but still finances multinationals
with records of executives convicted for corruption
in developed countries (including Suez and
Veolia)."2
30
Corporate cross-subsidies
Privatisation means loss of public but not private
cross-subsidy. Multinationals operate a global system
of obtaining profits from various operations in a
range of countries and then redistributing it and
investing in other places. This is central to multi
national companies and a lot of the trade deals, e.g.
Energy Charter are precisely meant to permit shift
ing money from country A, sector 1 to country B
sector 2. The extreme example of this is Vivendi in
January 2000 - having borrowed a lor of money to
invest in media and telecomms, the company
created a new ‘environmental division’ covering
water, energy, waste, and transport (now a separate
company, Veolia). Vivendi loaded all the group’s
debt (S22bn) on that section, while the commu
nications division became ‘debt-free’. The water,
waste and energy' customers of Veolia are still paying
extra interest on all their bills.
Corruption
When countries identify corruption processes in
an international privatisation transaction, the reac
tion of International Financial Institutions (IFIs)
and OECD governments is invariably to defend
the company and pressure the government to aban
don legal proceedings for corruption. One exam
ple was in Pakistan, where Hubco (then majority
owned by UK’s National Power) had engaged in
corruption to obtain a power purchase agreement
(PPA) whereby the country’s power authority
WAPDA guaranteed to buy all the output at a price
which was greater than the price at which WAPDA
was selling to consumers. This agreement was obvi
ously unsustainable, and WAPDA suffered a major
crisis. Both the UK government and the World
Bank discouraged Pakistan from continuing to
investigate the corruption case, on the grounds that
it would ‘undermine invesipr confidence in
Another was in Indonesia, where the World Bank’s
Multilateral Investment Guarantee Agency (MIGA)
guaranteed a corrupt PPA entered into by Enron
with the Suharto government. The electricity
authority was unable to pay, Enron claimed
compensation from MIGA, and MIGA reclaimed
it from the Indonesian government, despite protests,
threatening that it would never reinsure investment
in Indonesia again if they refused to pay."'*
Multinationals can walk away
.
Multinational companies cannot make a long-term
commitment to public services in any particular
country as their primary responsibility is to share
holders. Nor can they commit their shareholders
to remain in any venture which ceases to make an
adequate risk-adjusted return on their capital. So
their involvement in delivering services can be tenu
ous, subject to review if anticipated returns arent
delivered. A recent example is the policy' announced
by Suez to withdraw from one-third of its invest
ments in developing countries"5 and the announce
ment by their subsidiary in Manila to withdraw
from a water concession in the Philippines which
still had many years to run."6
There are also examples of multinationals exiting
from public transport in sub-Saharan Africa. Malawi
privatised its bus company to the UK-based multi
national Stagecoach in 1995. As long as it was a
monopoly, the multinational was successful. But in
1997 Stagecoach pulled out because it could not
cope when liberalisation and competition were
introduced. “The liberalisation ofthe passenger and
commercial transport sector pushed Stagecoach to the
wall tohen competition from private operators start
ing eating into vehicle investment and capital returns. ”
The public authorities were left with having to
provide services, so Stagecoach’s shares in the bus
company were bought back by a state holding
company because the service was too important:
"it is government policy to maintain the present oper
ations ofthe company. ”'22
A year later, a similar sequence of events took place
in Nairobi, Kenya, which had also privatised its
buses to Stagecoach. In September 1998, Stagecoach
sold its Kenyan bus company. It was malting a loss,
and parliament had decided to revoke the
Box 4b
company's 60-year monopoly and expose it to
competition.
Stagecoach declared 160 drivers and conductors
redundant within six months. It raised fares to high
levels, sometimes more than the rates charged by
taxis, and then abandoned loss-making routes. But
it was still unable to operate profitably, and so pulled
out altogether. The service was taken over by a new
company set up by Kenyans, which reduced fares
substantially.123
Risks in private finance
Both in developed and developing countries, public
services are under stress because of policies aimed
at using the private sector to finance capital invest
ment in exchange for long-term guaranteed
contracts. For governments, this holds down public
sector borrowing, which is a policy target for many
governments and invariably a formal requirement
of the IMF. For the public services, it means that
money is inflexibly committed to pay a private oper
ator under a contractual obligation for the next 20
or 30 years, and that operator has a clear incentive
to sustain its profit by maximising the payments it
demands and limiting the resources it provides to
the service.
AES leaves Europe, Africa, Asian energy operations
The energy multinational AES has also shown a clear readiness to leave operations which turn out to be insuf
ficiently profitable. In August 2003, it walked away from the largest power station in Britain, Drax (which gener
ates 8% of the UK’s electricity) because the fall in electricity prices had made it unprofitable."’ Later that same
month it announced it was walking out of a huge and controversial hydroelectric project, at Bujugali in Uganda.
leaving the Ugandan government to try and find an alternative company, or develop an alternative energy
policy."8
Two years previously, it had done the same in India. In 1999, AES bought one of the distribution companies in
Orissa, one of the poorest states in India. A month later, a cyclone devastated Orissa and killed tens of thousands
of people, destroying homes and villages and parts of the electricity network. AES said it had not insured the
network and so either the Indian government should compensate AES for the S60 million cost of rebuilding the
network, or the people of Orissa should pay three times as much for their electricity. Dennis Bakke, CEO of
AES, reportedly said “People have to bear the cost if the government does not share the burden’ .1" Although the
point of privatisation was to deal with the financial crisis in the system, AES started defaulting in their payments
to the state-owned Grid Corporation of Orissa (Gridco) for btdk supply, which in turn meant Gridco had no
funds to buy the electricity. In July 2001, the AES directors resigned from the distribution company.1' By the
end of August 2001, the regulator effectively had to take over, with employees threatening to strike because thev
had not been paid and consumers taking to the street to protest against growing power cuts.1
1'he private finance initiative (PFI) in the UK
requires public authorities to use this system to
build hospitals, repair schools, construct prisons,
build sewerage treatment plants and even develop
a new national insurance system. With hospitals,
the cost of PFI schemes has invariably been higher
than originally forecast, requiring 30% cuts in bed
capacity and 20% reductions in staff in hospitals
financed through PFI.124 An official audit report
on PFI in schools warned that expected savings
were not being delivered and that “there is a strong
cnsefor changing capitalfinding incentives to enable
options other than PFI to be pursued equally advan
tageously. This would open up the PFI mechanism
itselfto competition. ”125 One PFI project to improve
schools in north London resulted in an extra costs
of £6.25m for the council, due to lack of provi
sion for items like desks, chairs and cabling for
computers.126
In developing countries, similar approaches are
being adopted for infrastructure investment, espe
cially in water and electricity. Witter concessions of
30 years or more have been given to multinational
Box 4c
companies as a device for attracting investment. In
practice, many of these concessions have seen
increases in prices, less investment than anticipated,
inability to deal with currency devaluation or
demand falling short of projections and a loss of
control by public authorities.127
In the UK, where water privatisation was justified
as a way of bringing equity investment into the
sector, the private water companies have responded
to tougher price controls by withdrawing nearly all
equity and replacing it with debt finance — the clas
sic form of finance used by public authorities. Yet
public authorities can invariably obtain loans at
lower interest rates, and so die return to debt finance
is in effect a rejection of the central rationale for
privatisation.128
Guarantees, debt relief and the limits of FDI
The debt burden of governments has been identi
fied as a serious problem from all perspectives, and
so a programme of debt relief for highly indebted
poor countries (HIPC) has been created, follow
ing international pressure. Developing countries
are required by the IMF to reduce public sector
World Bank and the 18th century
When the World Bank and others advocate provision of services and infrastructure through delegation to private
companies, they are not describing an innovation of modern globalisation, They are describing a system which is
fundamentally the same as existed in 18'h century Europe. They echo the views expressed by the pre-Victorian
British prime minister, Robert Peel, who told Parliament in 1828 that “an improved supply [ofwater] ought not to
be provided by the government, nor the expense borne by the public. Ifso, the supply would never be procured at so cheap
a rate as it had hitherto been at the charge ofindividual projectors [=private companies] ... the interference ofgovern
ment is likely to be very unpopular, as an interference with private property. ”12’ A few years later, a cholera epidemic
in London showed the limitations of this view, and Mill explained the need for public control of natural monop
olies: “Where therefore business ofreal public importance can only be carried on advantageously upon so large a scale as
to render the liberty ofcompetition almost illusory. ..It is much better to treat it at once as a public fiinction... ”130
Over rhe next century, the old system defended by Peel was almost entirely replaced by public ownership and
public provision because of the inefficiency, costs and corruption involved in the old private system, the ‘ancien
regime’ of public services. In the late 19"‘ century, the main mechanism of this was municipalisation. Democraticallyelected councils bought existing utilities and transport systems and set up new ones of their own, on the basis
that they could exercise more effective control, more efficiently, with better employment conditions for workers
and with greater benefit to their local population than the private operators. Councils also gained the right to
borrow money and so invest in developing their own systems. This development of publicly owned and run local
services became known as ‘municipal socialism’ (or gas and water socialism), although there were parallel devel
opments at national level: the Tory and Liberal governments of Gladstone and Disraeli nationalised the telegraph
system, the Tory and Liberal governments of Balfour and Asquith nationalised the new telephone system.
32
borrowing as part of their conditionalities for
support and for being eligible for HIPC. However,
the pressures of privatisation in public services
create in parallel an increasing burden of debt obli
gations on governments through three main mech
anisms.
Governments are expected to give guarantees to
underwrite any loans taken out by private compa
nies for investment in privatised services. For exam
ple, the Philippine government underwrites the
loan taken out by one of the privatised water
companies with concessions in Manila, Maynilad;
the Polish government underwrites the loans taken
out by rhe private consortium of multinational
companies (MNCs) constructing Turow power
station; the Peruvian government guarantees the
bonds issued by the private consortium running
the Rio Chilion water project. Public authorities
are also expected to give guarantees to purchase
output, in the form of take-or-pay agreements.
Most so-called independent power producers (IPPs)
are supported by power purchase agreements
(PPAs), under which a public authority undertakes
to buy the power at a profitable price, regardless
of need. Similar long-term take-or-pay agreements
support bulk water projects built with private
finance at Izmir, Turkey, Rio Chilion, Peru, and
Chengdu, China; and the ‘shadow toll’ payments
guaranteed by the UK government to consortia
constructing new roads under PFI
schemes.
The contribution to investment in
public services in developing coun
tries from foreign direct invest
ment (FD1) has been less than
expected by market enthusiasts—
and far less than commonly
believed. As shown in the graph
below, FDI remains much less
significant for developing coun
tries than capital investment
within the countries themselves.
FDI may not even be additional
investment, especially where
government guarantees are used,
as the country’s international credit
exposure will limit the acceptable total of guaran
teed international loans underwritten by the govern
ment. So in 2003, when international private capital
is avoiding many developing countries, “Domestic
savings is the key source for domestic infrastructure
finance largely through pension and insurance funds
and bank loans".131
4.3 Labour
Labour central to service
In some public services, especially education and
healthcare, the service mainly consists of workers
themselves: the teachers, nurses, doctors, para
medics, cleaners. In business terms, these services
are labour intensive. This means that the quality
of these services is strongly and positively linked
to both the volume and the quality of labour: in
education, the pupil-teacher ratio is universally
used as a measure of the quality' of education deliv
ered: the more teachers, the better. This is recognised by those who pay' for private schools or
hospitals, where they expect to find more teachers
and smaller classes, more nurses and more highly
qualified doctors.
The importance of staffing can be seen very clearly'
in education. When countries eliminate fees for
primary education, the number of pupils increases
sharply. However, without employing extra teach
percentages above are annual averages tor 111 developing countries.
Source: World Bank and IMF data.
o
33
ers this may reduce the quality of education. In
Malawi, the result was that teacher pupil ratios shot
up, because no more teachers were employed.
Malawi has attempted to reduce the ratio from a
level of 110 pupils per teacher, partly by using para
professional staff, but staffing levels and quality are
still identified as problems by users.133 In Uganda
the results were similar: the pupil teacher ratio rose
from 38 to 65 nationally, and from 48 to 70 in rural
areas.13'
The globalisation of the labour market presents
particular problems. Public health and education
services in developed countries have used skilled
labour from developing countries since WW1I.
Recently the issue of migrant labour has become a
more serious problem, with developed countries
not being prepared to invest in training enough
nurses and teachers and instead relying on a pool
of skilled workers from South Africa, Caribbean
countries, the Philippines and elsewhere. This has
two particular effects: it allows developed countries
to acquire skilled staff cheaply, and denies the devel
oping countries a return on the investment they
Box 4d
have made in training staff, with a consequent an
impact on their public services and economies. In
some instances, developing countries replace these
skilled staff with lower paid, less skilled workers, to
the detriment of service quality. The GATS provi
sions of the WTO may make this problem worse.
Pay and conditions - effect on services
Low pay or insecurity affects the quality of service
delivered by health workers. Low pay can lead to
informal charging of top-up fees for access, health
workers taking on second jobs or moving into the
private sector. In central and eastern Europe, major
problems were created by the late payment of wages
to health workers, partly as a result of fiscal crises,
partly as a result of crowding out by spending on
drugs.133 The importance of fair wages is also obvi
ous in relation to workers who collect taxes — a point
made as long ago as the 18'h century by the politi
cal philosopher Tom Paine (see box 4d).
To generate improvements, improved pay needs to
be combined with adequate capacity building
through training. A ‘‘New Deal” scheme for the
Tom Paine and the tax collectors
The importance of a properly paid labour force in public services was highlighted in the 18C^ century by Thomas
Paine, author of “The Rights of Man”. In 1772 Paine was a working as a local collector of excise (indirect) taxes
for the Customs and Excise service in England, when he wrote a pamphlet in support of a petition by the tax
collectors for a pay rise.136 Paine pointed out that the problems of corruption and incompetent staff were lead
ing to a loss of revenue: “Scarce a week passes at the office but some detections are made offraudulent and collusive
proceedings... Oflate years there has been such an admission ofimproper and ill qualified persons into the excise that
the office is not only become contemptible, but the revenue insecure. "He argued that a well-paid and well-qualified
staff would be less susceptible to corruption and generate more revenue for the state: “the most effectual method
to keep men honest is to enable them to live so. ..An augmentation ofsalary sufficient to enable them to live honestly
and competently would produce more good effect than all the laws ofthe land can enforce... The officers would be
securedfrom the temptations ofpoverty, and the revenuefrom the evils ofit; the cure would be as extensive as the
complaint, and new health out-root the present corruptions. ’’
Paine was sacked by the government for writing the pay claim. His subsequent writings, “Common Sense”, “The Age
of Reason” and “The Rights of Man” became internationally famous. He played a leading role in the American revo
lution of 1776, and was made an honorary deputy of the French national convention after the revolution of 1789.13
In less than 30 years, however, positive employment policies enabled England to develop an effective tax collec
tion machinery. The introduction of income tax in 1797 provided a sustainable source of revenue which grew
steadily in importance and was reliably collected; the crucial step was the attention paid to its labour force: “The
main explanation ofthe new efficiency was thatfor thefirst time the government succeeded in training a reliable and
effective staffoftax collectors. “ 'ia
34
health services in Cambodia provided increased
incomes for health workers together with subsidies
for fees for poor people. Access improved but there
were still problems with the quality of care. The
report concluded that more training and capacity
building is needed if quality of services is to improve
(Van Damme and Meessen, 2001).
A striking example of the potential of improving
services through improving pay comes from
Bangladesh (see box 4e).
Autonomy and commitment
Public services workers — especially professional
workers — are usually expected to accept greater
responsibility and commitment to their work,
beyond the normal economic incentives of pay
received for work done. This relative autonomy is
a source of productivity, not just in the sense of
hours worked, but also in delivering a better qual
ity service — a teacher is more likely to teach a good
lesson if left to her or his judgment, than if
instructed in detail what to do. One of the prob
lems of privatisation, contracting-out or the intro
duction of greater ‘private sector style’ managerial
practices into the public sector is the potential weak
ening of this strength of effective public sector
organisations."'
The experiences in Ceara state (Brazil) (see box 4f)
show how reform and innovation in public serv
ices can harness the commitment of workers,
coupled with positive encouragement of public
participation and scrutiny, to deliver new services
effectively.
Public sector as positive employer
Public services have been key providers of employ
ment. As automation reduced the demand for labour
in production industries, public sendees have been
Box 4e
Dhaka, Bangladesh doubling water workers’ pay
improves service and finances (just like Henry Ford)
The Dhaka Water and Sanitation Authority (DWASA) was created in 1963 as a public sector utility to cater for
potable water, sewerage and storm water drainage of Dhaka, the capital of Bangladesh. By the 1990s DWASA
was financially and operationally inefficient, with high system loss. The World Bank (IDA) proposed a new loan,
conditional on institutional reform, a privatization study and experimental privatization of revenue billing, collec
tion and other activities. The unions countered with proposals to test the supposed virtues of privatisation, and
finally the IDA, DWASA, government representatives and trade unions agreed to test one Revenue Zone under
the private sector and another under an employees’ cooperative, for a trial period of one year.
The Employees Co-operative (EC) clearly out-performed both DWASA and the private contractors. In the EC
zone, revenue increased substantially, and ‘unaccounted for water’ was reduced. The EC’s success was based on
buying integrity by doubling the salaries paid by DWASA; and exploiting the experience and knowledge of the
workforce through participative decision-making. Consumer satisfaction also went up. The privatised EPC failed
because of lack of past experience, a top-heavy management and a failure to draw on grass roots knowledge.
DWASA’s zones continued to fail because of bureaucracy, poor pay, attendant corruption and inefficiency.
The poor and slum dwellers also benefited from the EC, because the workers made normal household connec
tions which DWASA rules normally prohibited. Under these rules, water could be supplied (at nominal cost) to
very poor households, but only if they officially owned land in DWASA’s area - since the majority did not, they
had to resort to buying water from private vendors at more than 10 times the normal price. The EC connected
many of these households, and collected charges at the normal household rate, bringing higher revenue to DWASA
and cheaper and more reliable water to the poor."
I his repeats what Henry Ford did in 1914, when he doubled autoworkers wages from S2.50 per day to S5.
1 urnover of staff and absenteeism fell, while labour productivity at Ford rose bv an estimated 51 percent that
year."0
Box 4f
Good government in the tropics
Ceara state, workers and initiatives
In the 1980s the government of Ceara stare in northwest Brazil introduced a series of reforms (including control
ling the wages bill by cutting payments to non-existent ‘ghost workers’) and “introducedsome outstanding and
innovative programmes in preventive health, public procurementfrom informalproducers, ...a large emergency-creating public works programme”,wd agricultural extension services.1’’
A book on the projects by Judith Tendler concluded that all the programmes “showed signs ofhigh performance
and significant impacts. In preventative health, infant mortality declined and vaccination coverage increased dramat
ically. In agricultural extension, the output and productivity ofclient farmers increased significantly and measurably.
The procurement programme did the same for it s small-firm suppliers, in addition to causing significant spillovers in
the form oflocal economic development. The programme ofpublic works construction during the drought emergency
createdjobs more rapidly than usual, succeeded in dedicating an unusually high share ofexpenditures to labor as opposed
to equipment and administration, and declientelised the distribution ofjobs, projects and reliefsupplies.
Tendler identified four crosscutting explanations for better performance, running through all the cases.
Firstly, “the workers in these programmes showed high dedication to theirjobs”— a factor which she suggests is ignored
by ‘mainstream’ development advice.
Secondly, “government itselffed the high dedication ofthese workers with repeated public demonstrations ofadmira
tion and respect for what they were doing. It built a sense ofcalling around these particular programmes and their
workers. It publicised the programmes incessantly, even their minor successes. It gave prizesfor good performance, with
much pomp and ceremony.. .All this contributed to a new respect for these workers by the public — remarkable in a
time of widespread contempt for government. ’Again, this is contrasted with “development advice where the public
servant is presumed guilty of'self-interest tinless proven otherwise”.""'
Thirdly, workers carried out a larger and more varied set of tasks than normal, especially in developing closer connec
tions and responsiveness to their clients, which created trust and respect between clients and public servants: contrast
ing with traditional development advice which restricts workers’ discretion to the programme specification.
Finally, systems of public monitoring of work were developed so that the work done was responsive, and the work
ers themselves were constantly monitored by an informed and expectant public. Communities were actively encour
aged to make demands on public authorities and their workforce, the government made sure that the public knew
exactly what hours workers were expected to work. This was the other side of the constant publicity, in which the
government urged communities to act as monitors: “this programme is yours and it is you who will determine its success...
make sure that those who are chosen abide by the rules ...ifthese rules are breached... we want to hear about it’’."'
The cases also challenge simple notions of the virtues of‘decentralisation’, especially through weakening the
central state. The cases involved decentralisation of activity, but show a ‘three-way dynamic’ between central
government, civil society and local government. In some respects, the state government actually reduced the
discretion of local government by imposing standard criteria and taking over responsibility' itself, for example
over the selection of candidates for employment, or of projects to be funded. The state played a key role in induc
ing democratic and citizen activity, for example through publicity campaigns and even, in the drought relief
programme, insisting on the creation of a new municipal council. The state governor who led the initiatives
himself gained position with the support of a group of modernising business people.116
the key source of growth in employment from the
mid-20lh century onwards. This has been especially
important for women, who make up a much higher
proportion of the workforce in services such as
health, education and social services. These sectors
36
have been a major source of employment in medical,
paramedical, nursing, cleaning and catering jobs
Conversely, privatising these services can lead to
casualisation of jobs and lower wages. A study' from
British Columbia, showed that privatising health
care support would sharply reduce wages for staff,
85% of whom are women. In a contract awarded
to multinational company Compass in 2003, wage
levels for health care housekeeping staff were
reduced to 1984 levels. This reflected the experi
ence with the systematic contracting-out of health
care and municipal services work in the UK under
the Thatcher government, which targeted the lowpaid and overwhelmingly female staff employed on
cleaning, catering and laundry tasks.147 Some sectors
have also played a major role in national labour
markets as a training and development agency. In
some countries, the railway system not only
employed a significant proportion of die workforce,
it was also responsible for a large proportion of
apprenticeships and training in many occupations,
including maintenance, welding and similar engi
neering and construction skills.l l8The same has been
true in white-collar occupations. The UK civil serv
ice, for example, was the major source of trained
computer programmers for the whole country from
the 1960s onwards and remains the biggest
employer of qualified scientists.
Public services are also most likely to operate affir
mative action policies, that is to deliberately give
preference to candidates disadvantaged by gender
or by race. This has been of great importance in the
USA, where in July 2003 the Supreme Court
upheld the principle that a university could, under
certain criteria, discriminate in favour of Americans
of African origin. The ruling was supported by,
amongst others, Colin Powell and Norman
Schwarzkopf, as the senior ranks of the USA armed
forces demonstrate the success of affirmative action.
It also demonstrated the importance of positive
discrimination for women: one of the Supreme
Court judges who supported that ruling declared
that she would not have risen to that level without
affirmative action.149
The public sector also frequently operates as a source
of sheltered employment for physically and mentally
handicapped workers. This role is socially valuable
but reduces productivity of the workforce and so
is likely to be threatened if a service is outsourced.
When the first private refuse collection contractors
were used in the UK under the Thatcher govern
ment in 1981, a worker with learning difficulties
was first used by the contractor on promotional
leaflets, but quietly dismissed after a few months.150
4.4 The future of public services
The role of public services is likely to become a
greater part of global society and the global econ
omy. There are three reasons for this:
— Firstly, the inevitable growth of public services in
developing countries where they are currently
inadequately provided. As these countries grow
and their expectations grow, the proportion of
their wealth devoted to public services will
increase as it has in the past in developed coun
tries.
— Secondly, there are new demands for public serv
ices. These include new needs for healthcare,
including dealing with AIDS and caring for
ageing populations. Public authorities at national
and international level are pursuing policies to
extend education to everyone, to build the
‘knowledge society’ or the ‘knowledge economy’
of the future.
— Thirdly, globalisation will require continuing
extension of the international role of the public
sector to support and regulate and contribute to
the process.
The changing needs can be illustrated by looking
at the role of public services in developing die inter
net and responding to the needs of information
technology, and at the various developments in
international public sendees.
New remits:
the Internet and information technology
The core element of the world’s information
network, the Internet, was the creation of public
authorities’ defence and university computer systems
in the USA, which created networks as deliberate
acts of publicly funded policies. It grew from four
host computers in 1989 to over 2,000 in die 1990s,
during which period private sector use was permit
ted for “open research and education... use for other
purposes is not permitted'’and was then opened for
private use from 1990 onwards.151
Public authorities have a central role in the devel
opment of Information and Computing Technology
(ICT) capacity and in the use of ICT in public serv
ices themselves. This involves both direct provision
of services, notably education in schools and univer
sities, and public Internet connections in libraries,
post offices, schools and elsewhere; procurement
and development decisions on acquiring and devel
oping hardware and software; planning functions,
for example in managing networks and standards,
and the use of Internet in making services and
information easily available to the public, known
as ‘e-government’.
These services are being developed by governments
in all countries.152 Malaysia is one example of a
common pattern (see box 4g).
Millennium Development Goals
and Human rights
The ‘Millennium Development Goals’ (MDGs)
are targets agreed by the UN in rhe year 2000.
Virtually all the MDGs explicitly depend on
government action through public services. The
achievement of universal primary education, the
reduction in child mortality, the improvement of
maternal health and the combatingo of HIV/AIDS
and other diseases all depend on the extension of
public health and education services. The eradica
tion of poverty and hunger — the first goal — also
requires not just economic growth but public mech
anisms for redistribution: “growth alone luill not
bring about improvements in education and health
outcomes. Nor will it redress the social and political
imbalances that trap people in poverty. To achieve the
Millennium Development Goals, poor people must be
empowered to take steps to improve their lives, and
governments must assist them by ensuring that they
can obtain the services they need, ’’Environmental
sustainability includes die target of extending access
to clean water supply. Global partnership for devel
opment “requires investment in energy and transport
systems, in human skill and knowledge. ”/55
Recognition of international human rights is also
extending across public sendees. In November 2002,
the United Nations Committee on Economic, Social
and Cultural Rights declared access to water to be a
fundamental right, and that water is a social and
cultural good and not only an economic commod
ity. The 145 nations that have ratified the
International Covenant on Economic, Social and
Cultural Rights are now bound by the agreement to
promote access to safe water “equitably and without
discrimination”.'5GT\\e United Nations Commission
on Human Rights (UNCHR) has released a report
that urged WTO member nations to consider the
human rights implications of liberalising trade in
services, especially health, education and water.157
International public sector and global
public GOODS
A global public sector already exists in the shape of
the various great international institutions of the
Malaysian development of ICT and e-government
The Malaysian government has set up a national ICT committee, which is working to develop capacity for the
country'. Programmes are divided into five main headings, involving a wide range of public agencies. These include
developing programmes for education, training arid capacity' building, support for e-business, financing a “Universal
Service Obligation” to ensure the extension of networks into poorer and rural areas and the use of the internet
for “e-government” services. A pilot project is being run in Subang Jay'a to transform the municipality into a
smart interactive community centre.15-1
Malaysia has also helped Afghanistan with positive advice on how to develop IT in a country' with little resources
or infrastructure. The key message was “to seriously consider OSS [Open Source Software - non-commercialfee
systems such as Linux] as the initial outlayfor this software is a fraction ofthe cost oflicensed software. Also, the global
OSS community is large, which means technical support will be more accessible. India, which is close by, is a vocal
proponent of OSS. Another advantage is that programmers can be trained quickly from an early age using OSS and
the technical support network that is available through the Internet. This will have a great impact on education. 151
38
United Nations (UN), the World Health
Organisation (WHO), the World Bank (and the
regional development banks such as the Asian
Development Bank) and the World Trade
Organisation (WTO). Like national states, these
institutions may prioritise private interests over
public concerns, but they are undeniably public
sector bodies created by collective political initia
tives and financed from taxation. They have specific
public service remits: the WHO in health, UN
agencies such as UNESCO in education, and the
World Bank in respect of economic development
(its practice, however, may fail to deliver its remit.)
One general approach to international public goods
was advanced by the UN in 1999 through the idea
of'global public goods’ which need to be delivered
and financed through international public sector
mechanisms.158 Environmental issues are one cate
gory. The clean air legislation of individual coun
tries is now supplemented by international
conventions on atmospheric pollution, such as the
Montreal and Kyoto protocols on the reduction in
emissions of CFCs and CO2. International regu
lation of fishing is the central mechanism for
conserving fishery stocks.
Health issues are another category. Co-ordinated
efforts to control infectious diseases through vacci
nation resulted in the global eradication of small
pox in the 1990s; international action is central to
efforts to control AIDS and HIV, including the
subjecting of economic issues such as the manu
facture and sale of drugs to international decisions
based on welfare and public interest. The World
Health Organisation (WHO) has a key role in
monitoring such diseases, as shown during the
recent outbreaks of severe acute respiratory
syndrome (SARS).
Knowledge and communications are another cate
gory where there is increasing need and scope for
international action. Access to the Internet is
becoming essential for education and thus for devel
opment: "the efficient production and equitable use
ofglobal knowledge require collective action”' Patents
on knowledge have to be international to be effec
tive, and now subject to agreements through the
TRIPS mechanism of the WTO. This highlights
the importance of developing an international
public service approach to these issues. The WTO
discussions treat intellectual property rights solely
as a question of trade liberalisation or restrictions,
and neglect the public interest in ensuring wide
spread use of beneficial inventions such as drugs,
the respect and encouragement of non-patented
inventions and the developmental needs of coun
tries other than those with corporate patents and
legal support systems to match.
There are an increasing number of suggestions for
developing global systems of public finance and
taxation to support global services. This would have
the advantage of a much greater tax base for more
effective redistribution, a challenge articulated by
a South African government official who asked:
“What is the Global Public Finance equivalent of
ending apartheid?”'X\\e best known suggestion is
the proposal of the Nobel Prize laureate James Tobin
for a tax on international financial transactions;
other suggestions include the use of a surcharge on
international air travel, using part of the fees paid
to the World Intellectual Property' Organisation
(WIPO) to support neglected research on tropical
diseases and agriculture
or basic education for all.16"
o
Mutual support: public-public partnerships
(PUPs) AND OTHER ACTIONS
Other forms of international cooperation and action
are developing. They’ include the general notion of
public-public partnerships (PUPs) whereby exist
ing, experienced public service agencies partner
others to help them build capacity, on the basis of
mutual support, not for profit.
The outstanding example of this is the case of the
support provided for municipal water and sanita
tion companies in the former communist states
around the Baltic Sea: Estonia, Latvia, Lithuania
and Poland. The support itself came in the form of
capacity' building through twinning arrangements,
financial aid and development bank loans.
1 he Helsinki Commission (HELCOM), an inter
national collaboration aimed at cleaning up the
pollution in the Baltic Sea, played an important
role. It included EU countries and development
banks as well as the transition states. A key part of
its activities was a Baltic Sea Joint Comprehensive
Environmental Action Programme (JCP), which
identified problem ‘hot spots’ needing wastewater
treatment in all the river basins draining into the
Baltic, and channelled technical and financial
resources to deal with these as common issues. The
PUPs formed part of this: for example, in Lithuania,
there were projects to develop wastewater plants at
Kaunas, funded by the EBRD, and advised and
assisted by public sector bodies from Finland (the
Finnish Environment Institute) and twinning
arrangements with Stockholm Water. Similar twin
ning arrangements were made between other
Swedish municipal companies and water authori
ties in Estonia, Latvia and Lithuania. A review in
1998 concluded that this approach had worked
well.161
5. Conclusions
The main conclusion of this booklet is that public
services are of central importance for social and
economic development and that they are based on
political choices which in turn depend on active
citizen participation.
Attempting to discourage the role of politics, or
treating these sectors as actual or potential markets,
weakens the social and national cohesion brought
40
by public services. A number of other points should
be made:
Choices and reforms
Countries and their elected governments must be
able to make decisions on the form and shape of
public services. Problems need to be addressed
locally and publicly. Democratic mechanisms have
to be the key instrument for curbing incompetent
or disastrous policies, rather than policies imposed
by bankers’ conditionalities or regional and global
trade rules.
Social solidarity, citizenship and TAP
Priority needs to be assigned to the universal,
mutual solidarity function of public services — not
their potential as a market. This necessarily involves
a redistributive taxation policy. The principles of
transparency, accountability and participation (TAP)
deserve widespread adoption and implementation,
through participator}' models of political control.
Political activity is a positive and necessary element
in ensuring quality public services
Global solidarity
International provision and support become more
important in the future of public services. The
development of more solidarity mechanisms like
PUPs, collaborative international public service
policies and the possibility of global public financ
ing mechanisms need to be explored.
Notes
W. Hardy Wickwar, The Public Services, (London: Cobden-Sandersen, 1938)
Wickwar, p.66
3
The role of the Post Office research laboratories at Dollis Hill, London, played a key role in the codebreaking activities at Bletchley Park, which was one of the origins of the first computers. Andrew Hodges,
Alan Turing: The Enigma, (London: Random House, 1938)
Harry Eckstein, The English Health Service: its origins, structure and achievements, (Harvard University
Press, 1959)
5
Erik Reinert, “Increasing poverty in a globalised world: Marshall Plans and Morgenthau plans as
mechanisms of polarisation of world incomes”, in Rethinking Development Economics, ed. by Chang
(Anthem Press, 2003), p.451
6
For more information on social dialogue in the EU see <http://wwsv.europarl.eu.int/factsheets/
4_8_6_en.htm>
7
Conflicts arose over this process. For example, when Egypt nationalised the Suez Canal in 1956, it was
attacked by Britain, France and Israel. Although the military attack failed, pressure on Egypt was
maintained and the World Bank acted as a mediator in getting Egypt to agree, in 1958, to pay
compensation to the previous owners, Compagnie de Suez. (Using that compensation, the company
invested in diverse sectors, and became the present-day Suez group, a water, energy and waste
multinational. Among other concessions, it was awarded the contract to run water sendees in the West
Bank and Gaza in 1998 - by the World Bank) See This Week in World Bank History, April 28 — May 4,
<http://lnwebl 8.worldbank.org/HRS/yournet.nsf/WB+History+050402?OpenPage>
8
Santosh Mehrotra and Stephen W. Jarrett, “Improving basic health service delivery in low-income
countries: ‘voice’ to the poor”, in Social Science & Medicine, vol. 54, issue 11 (June 2002), pp. 1685-1690
9
Santosh Mehrotra and R. Jolly, Development with a human face: Experiences in social achievement and
economic growth, (Oxford: Clarendon Press, 1997)
10
Amartya Sen, Development as Freedom, (Oxford University Press, 1999), pp.45-48
II
Education International, “Education for all - is commitment enough?”, in Education International
Report, no.l (2003) <http://www.ei-ie.org>
12
Klaus Deininger World Bank “Does cost of schooling affect enrolment by the poor? Universal primary
education in Uganda.”, in Economics ofEducation Review, vol. 22, issue 22 (June 2003), pp.291-305
13
Chilowa et al, User Perspectives On Social Services In Malawi, (2002), <http://www.ids.ac.uk/ids/pvty/
Social-Policy/CP 13.pdf>
14
Mikko Kautto, “Two of a kind? Economic crisis, policy responses and well-being during the 1990's in
Sweden and Finland: A balance sheet for welfare of the 1990’s”, in Statens Offentliga Utredningar,
(Stockholm: Fritzes, 2000), <http://social.regeringen.se/propositionermm/sou/pdf/sou2000_83e.pdE>
15
Kautto
16
Farrukh Iqbal, Evolution and Salient Characteristics ofthe Japanese Local Government System, (World
Bank Institute, 2001), <http://www.worldbank.org/wbi/publications/wbi37179.pdf>
17
WR1, Power politics: Equity and environment in electricity reform, ed. by Navroz K. Dubash, (August
2002), <http://pdf.wri.org/powerpolitics_execsumm.pdf>
18
Santosh Mehrotra and Stephen W. Jarrett, pp. 1685-1690
19
Janine Brodie, “Citizenship and solidarity: Reflections on the Canadian way ”, in Citizenship Studies,
vol. vi, no.4, (2002), pp.377-394
20
According to a World Bank official’s presentation at the 3,J World Water Forum, (Kvoto, Japan: March 2003)
41
For example, sec <http://www.nadir.org/nadir/initiadv/agp/free/colombia/txt/2003/03 18Watchword.htm>,
<http://www.unison.org.uk/international/pages_view.asp?did=128> and <http://www.nadir.org/nadir/
initiativ/agp/free/colombia/txt/2003/0418Colombia_Solidarity.htm#en04>
“Exploring youth and community relations in Cali, Colombia”, in Environment and Urbanization, vol.
xiv, no.2, (1 October, 2002), p. 149-156(8)
23 The electorate, however, was originally restricted to male property-owners and was only gradually
extended to all adults in 1930.
24 Robin Denselow, “Sound politics”, in The Guardian, (3 July, 2003), <http://www.guardian.co.uk/arts/
features/story/O,11710,989857,00. html>
Joseph Stiglitz, Globalisation and its discontents, (W.W. Norton & Co., 2002)
26 CIA Field Listing Military expenditures - percent of GDP (1 August, 2003), <http://www.odci.gov/
cia/publications/factbook/fields/2034.html>
2 In the EU Consolidated Treaty Art 296: “any Member State may take such measures as it considers
necessary for the protection of the essential interests of its security which are connected with the
production of or trade in arms, munitions and war material; such measures shall not adversely affect
the conditions of competition in the common market regarding products which are not intended for
specifically military purposes”, <http://europa.eu.int/eur-lex/en/treaties/dat/ec_cons_treaty_en.pdf > In
the GATS Article XIV bis: Security Exceptions: “Nothing in this Agreement shall be construed.. .to
prevent any Member from talcing any action which it considers necessary for the protection of its essential
security interests: (i) relating to the supply of sendees as carried out directly or indirectly for the purpose
of provisioning a military establishment; (ii) relating to fissionable and fusionable materials or the
materials from which they are derived; (iii) taken in time of war or other emergency in international
relations” <http://www.wto.org/english/docs_e/legal_e/26-gats_01_e.htm>
Stephen Golub, “Legal empowerment - A rights-based strategy for improving governance and alleviating
poverty”, in ID21, issue 43, (September 2002), <http://www.id21.org/insights/insights43/insightsiss43-artO 1 .html>; and Asian Development Bank, Law and Policy Reform at the Asian Development Bank
2001: Legal Empowerment: Advancing Good Governance and Poverty Reduction, (2001),
<http://www.adb.org/Documents/Others/Law_ADB/lpr_2001.asp?p=lawdevt#contents >
‘Non-exclusive’ and ‘non-rivalrous’ goods: the only goods generally agreed to be ‘purely’ public goods
are defence and services such as lighthouses. Social services like education and health are ‘merit’ goods,
which people decide to organise as a public sendee on the grounds that that result will be better overall
for society. Joseph Stiglitz, Economics ofthe Public Sector, 3rd edition, (Norton, 2000)
Adam Smith, Wealth ofNations, vol i, book ii, (1976), p.27
Hiromitsu Ishi, Trends in the Allocation ofPublic Expenditure in the Light ofHRD, (AdB, 1995); HaJoon Chang, Kicking Away the Ladder: Development Strategy in Historical Perspective, (Anthem Press,
2002) pp.47-48, p.45
Ha-Joon Chang, Globalisation, Economic Development and the Role ofthe State, (Zed Books, 2003)
R.J. Barro, “Government spending in a simple model of endogenous growth”, Journal of Political
Economy, vol.98, (1990), pp.S103-S125
Chris Tsoukis and Nigel J. Miller, “Public services and endogenous growth”, Journal ofPolicy Modeling,
vol.25, issue 3, (April 2003), pp.297-307
Nigel J. Miller and Chris Tsoukis, “On the optimality of public capital for long-run economic growth:
Evidence from panel data”, in Applied Economics, vol. 33, issue 9, (2001)
Antonio Acconcia, “On growth and infrastructure provision”, in Research in Economics, vol. 54, issue
2, (2000) pp.215—234 <http://www.sciencedirect.com/science/journal/10909443>
Rirva Reinikka, Jakob Svensson, “Coping with poor public capital ”, in Journal ofDevelopment Economics,
vol. 69, issue 1, (2002) pp.51-69, <http:// http://www.sciencedirect.com/science/journal/03043878>
42
38
39
40
41
42
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
Judith Tendler, Transforming Local Economies: Lessons from the Northeast Brazilian Experience, Presented
at the OECD/State of Ceara State Government Meeting on Foreign Direct Investment, (Fortaleza: 12
December, 2002) <http://www.oecd.org/dataoecd/43/37/2489902.pdf>
Alberto Gabriele, “Policy alternatives in reforming energy utilities in developing countries”, in Energy
Policy, <http://www.sciencedirect.com/science/journal/0301421 5>
Zhao Rong and Yang Yao, “Public service provision and the demand for electric appliances in rural
China”, in China Economic Review, vol.14, issue 2, (2003), pp.131-141
Ha-Joon Chang
Alberto Gabriele and Steve Thomas, “Policy alternatives in reforming energy utilities in developing
countries”, in Energy Policy, (2003)
Marcellin Aye, Francois Champagne and Andre-Pierre Contandriopoulos, “Economic role of solidarity
and social capital in accessing modern health care services in the Ivory Coast”, in Social Science and
Medicine, vol.55, no.11, (December 2002), pp.1929-1946
<http://www.waronwant.org/tobintax>
Soonman Kwon, “Healthcare financing reform and the new single payer system in the Republic of Korea:
Social solidarity or efficiency?”, in International Social Security Review, vol. 56, (2003), pp.75-94
P. Bcarse, G. Glomm and E. Janeba, “Why poor countries rely mostly on redistribution in kind”, in
Journal ofPublic Economics, vol.75, issue 3, (March 2000), pp.463-481, <http://www.sciencedirect.
com/science/journal/00472727>
Fernand Braudel “The Wheels of Commerce”, in Civilisation and Capitalism
century, vol.2,
trans. By Fontana, (1985), pp.525-526
Braudel, p.527
<http://www.ahmedabadciry.org>. This table excludes a number of events listed by Ahmedabad that
are not directlty related to the municipality.
Reena Lazar, ICLEI: Local Strategies for Accelerating Sustainability - Increasing Resources to Local Government
in Ahmedabad, India, (2002), <http://www3.iclei.org/localstrategies/summary/ahmedabad2.html>
“Expert finds fault with MCD fund-raising” in The Hindu (17 June, 2002). The success of the bonds
was based on the attractiveness of the cities’ bonds themselves: only Indore’s bond was supported by a
guarantee from the government of India.
K. Bakker and D. Hemson, “Privatising water - BOTT and hydropolitics in the new South Africa”, in
South African Geographical Journal, vol. 82, issue 1, (2000), pp.3-12
Issues paper, NIS Ministerial Conference on water management and Investment, (Al mat}’, October 2000)
Andrew Nickson, “Urban Water Supply Sector Review”, in Role ofGovernment in Adjusting Economies,
(International Development Department, University of Birmingham, 1997)
Prayas Energy Group, Lessons ofthe Enron Debacle: Democratization through TAPing ofgovernance as the
remedy, (India, 2001), <http://www.prayaspune.org/energy/24_lNFRA_Rep_01.pdf>
A. Mills, R. Antonins, J. Daniel, H. Gray, E. Haqq and F. Rutten, “The distribution of health planning
and management responsibilities between centre and periphery: historical patterns and reform trends
in four Caribbean territories ”, in Health Policy, vol.62, issue 1, (October 2002), pp.65-84
Mark W. Skinner, Altin E. Joseph and Richard G. Kuhn, “Social and environmental regulation in rural
China: bringing the changing role of local government into focus ”, in Geoforum, vol.34, issue 2, (May
2003), pp.267-281
John Briscoe, The German Water and Sewerage Sector: How well it works and what this meansfor developing
countries, (Washington, DC: The World Bank, October 1995), <http://wbln0018.worldbank.org/
ESSD/essdext.nsf/18DocByUnid/37FD92E040C12CCE85256B500069284F/$FILE/TheGermanWater
&ScwerageSector.pdf>
Examples include the former communist states of eastern Europe and some centralised states in western
43
Europe, such as the UK: see Hugh Heclo and Aaron B. Wildavsky The Private Government ofPublic
Money:
Community and Policy Inside British Politics, (Berkeley: University of California Press, 1975)
GO
<
www.ids.ac.uk/ids/bookshop/rr/Rr53.pdf
>
61
“
I
Comuni
decidono
con
i
cittadini
”
,
in
II
Sole, (11 August 2003)
62
In 2002 voters in New Orleans agreed that any privatisation contract worth more than $5m should be
subject to approval by referendum (The Bond Buyer March 5, 2002, Voters Give Themselves Voice in
New Orleans Sewer Privatization). This subsequently acted as a deterrent in itself to potential bidders:
in June 2003 Suez’ USA subsidiary, United Water “said this week that it has lost interest in the contract,
which could run 20 years and total $1.5 billion, mostly because of new laws that ensure a public vote
before the system is turned over to private management.” (Times-Picayune (New Orleans, LA) June
27, 2003 Friday. Company bails out of N.O. sewer bid; Few left to compete for water contract).”
63
The
result in San Francisco was a narrow defeat for remunicipalisation.
64
Dusseldorf voted overwhelmingly against privatisation of the energy' utility in May' 2001 (Het Financieele
Dagblad (English) May 21, 2001 NUON'S GERMAN PLANS SET BACK BY REFERENDUM.
The same year Zurich voters rejected the privatisation of the city's electricity' utility: News, Switzerland:
Axpo consolidation frustrated (FT Energy' Newsletters - Pow’er in Europe, June 18, 2001)
65
PSIRU and DMAE, Water in Porto Alegre, Brazil, prepared for the World Summit on Sustainable
Development, (2002), <http://www.psiru.org/reports/2002-08-W-dmae.pdf>
66
The Hindu, (24 May, 1999)
67
<http://www.wpuda.org/page03.html>
68
<http://www.opuda.org/oregon-puds.html> PUDs are called "Peoples Utility Districts" in Oregon
69
Subodh Wagley, “Tapping consumer power,” The Hindu, (11 September, 2000), quoted in Transnational
Institute (TNI) unpublished paper, Discussion Paper Toward a Equitable, Sustainable, and Democratic
Electricity Future: Power Liberalization or Power Transformation?, vers. 1.0, (2002)
70
Prayas Powerpoint presentation.
71
In nearly all these respects unions are different from private companies, especially' multinationals, who
represent die interests of shareholders, wherever they are; may' offer business skills, but rarely' a professional
view of a service; have not traditionally' opposed the extension of public services and the accompanying
taxation, and were often neutral, or even hostile, to liberation movements.
Judith Tendler Good Government in the Tropics, (Johns Hopkins University Press, 1998), p.10-12
73
Blumner et al, Aspiring To Excellence:Comparative Case Studies ofPublic Sector Management-Management
Cooperation in New York State, (Department of City' and Regional Planning Cornell University, June
1998)
74
Brendan Martin, European integration and modernisation oflocal public services: trade union responses and
initiatives, (EPSU 1996), chapter 5
75
Navroz Dubash, ed., Power Politics — Equity and Environment in Electricity Reform, (Washington DC:
World Resources Institute, 2002), <http://pdf.wri.org/powerpolitics_front.pdf>
76
David Hall, Water in Public Hands, (PSIRU, 2001), <http://www.psiru.org/reports/2001-06-Wpublic.doo
77
David Hall, Kate Bayliss and Emanuele Lobina, Water in Middle East and North Africa, (PSIRU, 2002),
www.psiru.org/reports/2002-I O-W-Mena.doc
78
Examples include Honduras and Zimbabwe; see Hall, Water in Public Hands
79
D. Whitfield, Public Services or Corporate Welfare, (London: Pluto Press, 2001), chapter 9
80
Okke Braadbaart, “Private versus public provision of water services: does ownership matter for utility
efficiency?”, in Aqua, vol. 51, (2002), pp.375-388
81
Prayas
82
Jean Bouinot, “Le dialogue cntre chercheurs et praticiens en gestion locale: la capitalisation conjointe
44
des savoirs theoriques et des savoir-faire au service des collectivites locales (Improvements in the public
provision of local government services by a useful dialogue between researchers and practitioners: the
joint capitalization of theoretical knowledge)”, in Geographic Economic Societe, vol.4, issue 3, (September
2002), pp.337-345
83
CEEP/CIRIEC, Services of General economic Interest in Europe: Regulation, Financing, Evaluation, Good
Practice, (November 2000), p.222
84
CEEP/CIRIEC, p.227
85
CEEP/CIRIEC, p.227
86
CEEP/CIRIEC, p.221
87
H. Northrup et al, Negro Employment in Basic Industry, (University of Pennsylvania, 1970)
88
World Bank: Procurement Guidelines Index
<http://web.worldbank.0rg/WBSITE/EXTERNAL/PROJECTS/PROCUREMENT/O,
contentMDK:20060840-pagePK:84269-piPK:60001558-theSirePK:84266,00.html>
89
Elias G. Carayannis and Denisa Popescu, “Profiling a methodology for economic growth and convergence:
learning from the EU e-procurement experience for central and eastern European countries”, in
Technovation, (2003), <http://dx.doi.org/10.1016/SO166-4972(03)00071 -3>
90
Rail maintenance work in the UK has now been taken away from contractors and brought back inhouse:
The Guardian October 24, 2003 "Rail safety move ousts contractors: Unions hail 'renationalisation' step"
91
Gavin Mooney, “The Danish health care system: it ain't broke...so don't fix it” Health Policy, vol.59,
issue 2, (January 2002), pp. 161-171
92
Social Watch, Annual Report 2003 <http://www.socwatch.org.uy/en/informelmpreso/index.htm>
93
Matthew Buresch, The Declining Role ofForeign Private Investment, presentation at World Bank Energy
Forum, (Deloitte Emerging Markets, 2003), <http://www.worldbank.org/energy/week2003/
Presentations/EnergyForum 1/Buresch WB Forum presen ration. pdf>
94
Antonio Estache, Vivien Foster and Quentin Wodon, “Making infrastructure reform work for the poor:
Policy options based on Latin American experience”, in WBI Studies in Development, (FPSI. World
Bank, 2001), p. 19
95
Ellen Gould and Clare Joy, “In whose service? The threat posed by the General Agreement on Trade in
Services to economic development in the South”, in World Development Movement Report (WDM),
(December 2000); and Public Services International and Education International, The WTO and the
General Agreement on Trade in Services: What is at stake for public health, (J uly 2000)
96
<http://www.wdm.org.uk/campaign/gatsl091eaks.htm>
97
Gregory Palast, “Dr Bankenstein's monsters: The World Bank, the IMF and the aliens who ate Ecuador”,
in The Observer, (London: 8 October, 2000)
98
Jane Lethbridge, Forces And Reactions In Healthcare: A Report On Worldwide Trends, (PSIRU, 2002),
<http://www.psiru.org/reportsindex>
99
<http://www.isodec.org.gh>
100
Social Watch, Annual Report 2003 <http://www.socwatch.org.uy/en/informelmpreso/index.html>
101
Leon Bijlmakers and Marianne Lindner, The World Bank’s Private Sector Development Strategy: Key Issues
and Risks, (ETC Crystal/WEMOS, April 2003), <http://www.wemos.nl/prs/libraty/healtheconomic/
psd_strategy_worldbank.pdf>
102
Johan Willner, “Ownership, efficiency, and political interference”, in European Journal ofPolitical
Economy, vol. 17, no. 4, (2001), pp.723-748
103
Data on how the US healthcare system compares internationally is contained in Bureau of Labor
Education, University of Maine, The CIS Healthcare System, (Summer 2001), <http://dll.umaine.edu/
ble/U.S.%20HCweb.pdf>
104
Michael Pollitt, Ownership and Performance in Electrical Utilities, (Oxford University Press, 1995)
45
,0' Bishop, Kay and Mayer, Privatisation and Economic Performance, (Oxford University Press, 1994)
106 Hall, Water in Public Hands
111 OFWAT: Leakage and rhe efficient use of water 2000-2001 report
<http://www.ofivat.gov.uk/aptrix/ofwat/publish.nsf/AttachmentsByTitle/leakage.pdf/SFILE/leakage.pdf>
108 Water in Public Hands 2001 http://wxvw.psiru.org/reports/2001-06-W-public.doc
l0” Alberto Gabriele, “Policy alternatives in reforming energy utilities in developing countries”, in Energy
Policy, (2003)
110 “Cour des Comptes: La gestion des sendees publics locaux d’eau et d’assainissement”, in Rapportpublic
particulier, (Janvier 1997), <http://www.ccomptes.fr/Cour-des-comptes/publications/rapports/
eau/cdc72.htm>
Underestimating costs in public works projects: Error or lie? by Bent Flyvbjerg; Journal of the American
Planning Association; Summer 2002; Vol. 68, Iss. 3; pg. 279, 17 <http://pqasb.pqarchiver.
com/planning/128776261 ,html?did= 128776261 &FMT=ABS&FMTS=FT:TG:PAGE&desc=Underestim
ating+costs+in+public+works+projects:++Error+or+lie%3f>
David Hall, “Multinationals, privatisation and corruption”, in Development in Practice, (1999)
113 ibid
David Hall and Kate Bayliss, Can risk really be transferred to the private sectori A review ofexperiences
with utility privatisation, (PSIRU, 2002), <http://www.psiru.org/reports/2002-l l-U-risk.doc>
115 SUEZ introduces its 2003-2004 action plan: refocus, reduce debt, increase profitability, (Paris, 9 January,
2003), <http://wv-xv.suez.com>
116 “Maynilad - A losing proposition from the start?”, in Business World (Manila, Philippines: 19 December, 2002)
“AES Corp, to hand over power plant to creditors”, in The New York Times, (August 7, 2003)
118 “Africa news: Uganda: Govt takes over AES assets”, in New Vision, (August 26, 2003)
Dilip Bisoi, “Storm over AES plan to up rates in Orissa”, in Financial Express, (Bombay: 16 November,
,
1999)
<http://www.financialexpress.com>
120 Mohammed Ahmedullah, “Orissa State Throws Out AES Management At Indian Power Company”,
in Energy Daily, (4 September, 2001)
121 ibid
122 “Business and Finance: Low Malawi Profits Drive Out British Bus Company”, in Business Malawi, (9
September, 1997)
123 The Nation, (Nairobi, 3 November, 1998)
Allyson M Pollock, Jean Shaoul and Neil Vickers, “Private finance and ‘value for money’ in NHS hospitals:
a policy in search of a rationale?”, in British Medical Journal, vol.324, (18 May,2002), pp.1205-1209,
<http://bmj.bmjjournals.com> This article contains references to many other detailed critiques of PF1.
125 Audit Commission, PF1 in Schools, (30 January, 2003), <http://www.audit-commission.gov.uk/
subject.asp?CatID=ENGLISHALGASUBJECTALG-EDU>
126 Melanie McFadyean and David Rowland, “A costly free lunch”, in The Guardian, (30 July, 2002)
l2~ PSIRUReports, <http://www.psiru.org/reportsindex.htm>
128 Karen J. Bakker, “From public to private to...mutual? Restructuring water supply governance in England
and Wales”, in Geoforum, vol.34, issue 3, (August 2003), pp.359-374 y Wickwar (1938) p. 19 )
Robert Peel, House of Commons, 19 May 1828 (quoted in Hardy Wickwar (1938) p. 19)
130 J. S. Mill, Principles ofPolitical Economy I.ix: read to the House of Commons, 29 April 1851 (from
Hardy Wickwar (1938) p.25)
131 Sullivan, J.B., 1990. Private power in developing countries: early experience and a framework for
development. Annual Review of Energy and the Environment 15, 335-363. and structural reviewof
Selected Infrastructure Sectors, World Bank Technical Paper, No. 474, Washington DC.
132
46
Buresch
133
Wycliffe R. Chilowa et al, User perspectives on social services in Malawi, (March 2002),
<http://www.ids.ac.uk/ids/pvty/Social-Policy/CP13.pdf>
134
Deininger, pp.291-305
135
“....in many cases rapid privatization combined with a lack of control and proper regulation has led to
chaotic and unmanageable development. High prices, an overflow of imported drugs, and excessive
profit margins have led to problems of affordability” (WHO European Health Care Reforms: Analysis
of Current Strategies: Summary, p.25); “Federacja Konsumentow, the Polish consumers' federation,
has published a leaflet reminding people that many of the medicines on the flourishing Polish market
are either useless, expensive, or both.” (FT Bus Rep 10 October 1995)
136
Case ofthe officers ofexcise: With remarks on the qualifications ofofficers, and on the numerous evils arising
to the revenue, from the insufficiency ofthe present salary: Humbly addressed to the members ofboth houses
of parliament <http://www.ecn.bris.ac.uk/het/ paine/volume 1 0/1 83-207%20Case%20of%20
the%200fficers%20of%20Excise.rtf>
137
John Keane, Tom Paine — a Political Life, (Bloomsbury Publishing, 1995)
138
Ursula K. Hicks, Public Finance, (Cambridge University Press, 1951), p. 14 1
139
M.Z.Hoque, Experimental alternate option to privatization of water industry in Dhaka, Bangladesh,
presented at 3rd World Water Forum (Kyoto, Japan: 16-23 March, 2003), <http://www.tni.org/
altreg/water/hoque.pdf>
140
M. G. Raff and Lawrence Summers, "Did Henry Ford Pay Efficiency Wages?" Journal of Labor
Economics, pt. 2, October 1987, pp. S57-S86.
141
For an account of the economic value of the public service ethic, see Patrick Francois, “Public service
motivation as an argument for government provision”, in Journal ofPublic Economic, vol.78, issue 3, (November
,
2000)
pp.275-299. He concludes: "There is a danger that the constitutional, legal, cultural and leadership
factors, which together create what is important and distinctive about public services, are not reflected on, or are
dismissed as the bureaucratic problem which must be “reformed”" Francois refers to Denhardt, (1993), Wilson,
(1989), Gold, (1982) and Rainey and Steinbauer, (1999) for evidence on the gains from autonomous workers.
142
Judith Tendler, Good Government in the Tropics, (John Hopkins University Press, 1997), pp.9,13
143
Tendler, p. 135
144
Tendler, p.136
145
Tendler, p.30. In the health programme, unsuccessful job applicants were specifically encouraged to
monitor the performance of those appointed.
146
Tendler, p. 142
147
Research by the Centre for Public Services, <http://www.centre.public.org.uk>
148
In some countries a similar role is played by the armed forces, for example in the USA through the US
Army Corps of Engineers.
149
“A supreme showdown”, in The Guardian, (London: 21 June, 2003); Mary' Deibel, “Business sides with
university' in race admission case”, in Scripps Howard News Service, (25 March, 2003)
150
Labour Research Department, Privatisation, (London: 1982)
151
Quoted in D. Spar, “The public face of cyberspace”, in Global Public Goods, ed. by Kaul et al,
(UNDP/Oxford University' Press: 1999
152
For some e-government websites see: <http://www.ecitizen.gov.sg> (Singapore)
153
<http://www.nitc.org.my/index.shtml>
154
<http://www.nitc.org.my/oss_insight.shtml>
155
<http://www.developmentgoals.org/>, all quotes taken from this and subsequent pages
156
Committee on Economic, Social and Cultural Rights Twenty-ninth session Geneva, 11-29 November
2002 Agenda item 3: Substantive issues arising in the implementation of the international covenant on
Economic, Social and Cultural Rights - General Comment No. 15 (2002) The right to water (arts. 1 1
47
and 12 of rhe International Covenant
on Economic, Social and Cultural Rights)
<http://l 93.194.138.190/html/menu2/6/gcl 5.doo
" Social Watch, Annual Report 2003 <"http://www.socwatch.org.uv/en/informelmpreso/index.htm "
http://www.socwatch.org.uy/en/informelmpreso/index.htm>
l5S Global Public Goods, ed. by Kaul et al, (UNDP/Oxford Universit}' Press: 1999
,w Joseph Stiglitz, “Knowledge as a Global Public Good”, in Global Public Goods, ed. by Kaul et al,
(UNDP/Oxford Universit}' Press: 1999), p.321
160 Ethan Kapstein, “Distributive justice as an international public good”, in Global Public Goods, ed. by
Kaul et al, (UNDP/Oxford Universit}' Press: 1999)
161 HELCOM Netos: Newsletter of the Helsinki Convention, (April 1996), <http://www.helcom.fi/
ncws/news496.html>
48
PSIRU
Public Services International Research Unit (PSIRU) was set up in 1998 to carry out empir
ical research into privatisation, public services, and globalisation. It is based in rhe University
of Greenwich, London, UK. PSIRU's research is based on the maintenance of an extensive
database of information on rhe economic, political, financial, social and technical experience
with privatisations of public services worldwide. The core work is funded by Public Services
International (PSI), the global confederation of public service trade unions.
The principal focus of PSIRU’s work is on water, energy, waste management and healthcare,
but it also addresses the general questions of the role and structure of public services, both in
the EU and in developing countries, the role of multinational companies in globalisation, and
the role of the international financial institutions, especially the World Bank. The work of the
PSIRU touches on a number of issues, including: corruption, public enterprise, multinationals'
labour relations policies, public-private partnerships, political and economic effects of long
term private financing or PF1, pension funds and corporate governance, use of internet and
databases for sharing information internationally, social network analysis.
The core work of the PSIRU centres around the following functions:
1.
Maintaining a database on multinational companies involved in privatisation of public
sector activities. This includes monitoring of takeover and merger activities, financial and
political developments, and developments in the sectors, covering issues such as concen
tration of ownership, performance, pricing, financing, employment, political relations, and
corruption.
2.
Producing and publishing commissioned and other reports, based on the empirical data
collected by PSIRU. These include surveys of developments by region and/or sector eg
water in Latin America or Africa, venture capital in healthcare worldwide, electricity regu
lation in the UK, energy privatisation in central and eastern Europe, corruption and procure
ment, EU policy initiatives on public services, critiques of World bank policies, ownership
of the waste management industry, reports on specific companies eg Enron. A full list of
reports can be accessed at www.psiru.org .
3.
Maintaining a website at www.psiru.org which allows online access to the database includ
ing information on companies, recent news, and PSIRU reports and publications.
4.
Specific major projects.
PSIRU is the leading institute in a major 3-year research project, Watertime, funded by the
European Commission. It also runs a major project on corruption. Unicorn, which is funded
by the Wallace Global Foundation.
For further information about PSIRU please email psiru@psiru.org
About Public Services International
Public Services International is a global federation of unions representing 20 million workers
involved in the delivery of public services in 150 countries around the world.
PSI is an active participant in debates and campaigns about building quality public services;
tackling the need for a social agenda in globalisation; defending and promoting workers rights;
trade union capacity building and promoting equity and diversity.
PSI has made a long-term commitment to pro-actively campaigning for quality public serv
ices. In doing so, it draws on the history of successes and acknowledges rhe need to tackle fail
ures through genuine and positive reform. PSI and unions around the world look forward to
building partnerships and campaigns with all those who share the view that quality public
services are essential in providing opportunity and justice to communities and people around
the world.
To learn more about PSI’s campaigns, and how you can make a difference, please visit
www.world-psi.org.
Quality
Public
Services
www.world-psi.org
Public Services International
B.P. 9
01211 Ferney-Voltaire Cedex
France
Tel: +33.450 40 64 64
Fax: +33.450 40 73 20
Email: psi@world-psi.org
www.world-psi.org
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