Understanding the Public Services Industy

Public Services Industry Review
Section 1: What is the Public Services Industry?
What are Public Services?
1.1 Public services may have previously been considered as services paid for by the
taxpayer and delivered by government employees to members of the public. However,
as services are increasingly contracted out and provided by private and third sector
employees, it is clear that this definition no longer applies. Public services must be
defined in terms of their intrinsic nature, rather than how they are delivered.
1.2 A more appropriate definition is
‘… any service provided for large numbers of citizens, in which there is a potentially
significant market failure (broadly interpreted to include equity as well as efficiency),
justifying government involvement – whether in production, finance or regulation’ 4
1.3 The type of market failure clearly differs across different public services and influences
the type of involvement required. For example, in transport and utilities where there
are networks and natural monopoly elements, the primary role of government is
to prevent the abuse of market position. This can take the form of direct control of
production and investment, or as is now more common in the utilities sector, price and
quality regulation.
1.4 For other services the main rationale for intervention lies on the demand side.
Pure ‘public goods’ such as law enforcement, defence and public administration
are provided by government on behalf of citizens because this is the most efficient
way to ensure that all citizens contribute to their cost. With services such as health
and education the concern is that individuals can’t or won’t pay for these services
themselves. Nearly all governments are involved in healthcare provision, either
purchasing healthcare on behalf of all or some of the population, or in ensuring access
through a social insurance scheme. This is justified both because of the benefits to the
whole population (‘externalities’) of disease control and on the grounds of fairness in
countering the random nature of illness or accidents.
1.5 Public services include a wide range of services, delivered at both the local and
national level. Street cleaning, refuse collection and libraries for example, are delivered
locally while defence, prison services and judicial systems are organised and delivered
by central government.
4 The Assessment: Financing and Managing Public Services , Grout, P. and Stevens, M (2003).
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