Public Management and Administration - Owen E.hughes

74 Public Management and Administration
one firm or another. … But by and large, individuals do not view the country in which
they live to be a matter of choice, and, having chosen to live in a particular country, they
become subject to the State. The fact that membership is compulsory gives the State a
power of compulsion which other organizations do not have. … More generally, all transactions
between parties other than the State (other than theft and ‘accidents’) are voluntary.
Stiglitz goes on to argue (p. 22) that while governments have this power of
coercion, in democratic societies ‘government relies for the most part on voluntary
compliance’. Despite this, it is universal membership and compulsion
that makes government fundamentally different from the private sector. The
private sector does have ways of forcing compliance, with contracts, for example,
but in legal activities the allowable force is through the legal system provided
by government. Even privately provided mediation or arbitration relies,
in the end, on the government legal system.
However, the question must be asked if there is any need for a public sector
at all. If the normal mechanism of exchange is through the market, what are the
possible functions of government? According to Musgrave and Musgrave
(1989, pp. 5–6), the prevalence of government ‘may reflect the presence of
political and social ideologies which depart from the premisses of consumer
choice and decentralised decision making’. Also, ‘the market mechanism alone
cannot perform all economic functions’ and, without government, markets will
not work for the following reasons:
(i) There must be no obstacles to free entry [to markets] and consumers and producers
must have full market knowledge. Government regulation or other measures may be
needed to secure these conditions. (ii) They may also be needed where competition is
inefficient due to decreasing cost. (iii) More generally, the contractual arrangements and
exchanges needed for market operation cannot exist without the protection and enforcement
of a governmentally provided legal structure. (iv) … Problems of ‘externalities’.
arise which lead to ‘market failure’ and require solution through the public sector. …
(v) Social values may require adjustments in the distribution of income and wealth which
results from the market system and from the transmission of property rights through
inheritance. (vi) The market system … does not necessarily bring high employment, price
stability, and the socially-desired rate of economic growth. Public policy is needed to
secure these objectives. (vii) Public and private points of view on the rate of discount used
in the valuation of future (relative to present) consumption may differ.
These points provide some rationale for government intervention, particularly
the notion that markets do not work well under all circumstances. Markets are
undoubtedly powerful and can provide a system of allocation and distribution
for many goods and services, without the intervention of governments. But
markets cannot do everything.
Although the private and public sectors are usually seen as quite separate,
the division of the economy into two mutually exclusive sectors may be artificial
(McCraw, 1986). There is so much interaction between the two that setting
up a strict dichotomy is rather misleading. It could be argued that the modern
capitalist economy is a ‘thoroughly mixed system in which public and private
sector forces interact in an integral fashion’ and the economic system is ‘neither