Privatization and public sector reform in 1990s Australia

Managing Out -- the Public Sector in the Community

Two major economic positions have dominated the public sector for more than a decade. One side believes that the government should take primary responsibility for the welfare of its citizens, while the other contends that greater reliance on the private sector is the method by which an economy can be more effectively managed. The first idea has largely been gleaned from the works of Keynes. He was an economist who believed that government intervention was required to maintain a stable economy and that the state was better equipped to be the central figure in economic management because it has a duty to the citizens which the private sector does not (Pressman, 2011). The counter to this politically liberal position is that of Frederich Hayek. He believed that free markets were the best regulators of the economy ( Griffiths, 2007) and that the welfare state leads to totalitarianism on the part of the government (Caldwell, 2011).

The position of Hayek has engendered much discussion over the past couple of decades in countries where socialism has been the government bastion since the Second World war, and several reasons exist for this change in governmental tenor. In many countries, government has become the major provider of a number of services that were previously private. Such industries as medicine and various utilities have come under government control because they are seen as essential to the welfare of the public. Thus, government has worked to make sure that services in these areas were available to citizens at a relatively inexpensive rate of exchange (Gripaios & Munday, 1998). But, practice has revealed that there may have been better ways to distribute these services (Caldwell, 2011). One of the main issues has been efficiency of service. The government takes in the entire breadth of a service for a country instead of parceling it out the way free enterprise would (King & Pitchford, 1998). So, getting a service to an individual is sometimes problematic. Also, since the world community is smaller than it was previously, it is easier for citizens of one country to see the impact of state vs. free enterprise (Watts, 2000). The efficiency of distributing services and the fact that other countries have shown the effectiveness of free enterprise has led Australia to "manage out" to a much greater extent. This promise of greater efficiency from a delivery standpoint and the success of other countries developing the same processes were two of the key factors that Australia used to determine whether to attempt the new managing out paradigm beginning in the 1980's.

Efficiency of Services

Australia was one of the first countries to realize that there were benefits to the ideas of Hayek which caused administrations in the 1990's to start reapportioning some public enterprises. One of the original experiments was with employment services. Webster and Harding (2001) found that there were many services which require a firm hand from government to avoid what they called "economic chaos" (e.g. healthcare, education, and subsidized housing). It would be difficult to maintain some of these services at a consistent level without the intervention of government. However, other services could be privatised, to some extent, with no loss of service. The authors of the study found that privatisation led to "lower unit costs" (Webster & Harding, 2001) for services such as refuse collection and mail delivery. This seems to be the case because the efficiency of the service, which flagged under government operation, was more efficient in its delivery when in private hands (Harris & Lye, 2001). This is something that was predicted in the work of noted conservative economist Milton Friedman (Teira, 2007).

The efficiency argument has been a strong one when the government looked to privatize some of its services. This has been debated because there is different evidence in different studies that have made the question somewhat ambiguous (Bhatti, Olsen & Pedersen, 2009), but the prevailing message from research has been that efficiency in providing certain services is increased when they are contracted out vs. being doled out by the public sector (King & Pitchford, 1998). The reason for this is apparently a profit motive. The government is mainly concerned with providing a service, and sometimes it is seen as substandard by the public. However, a government agency cannot respond to inefficiency as quickly as a private business. The private concern generally has one job (versus the many concerns of government), and that job is to turn a profit. Since turning a profit is contingent on the satisfaction of the customer base, the private enterprise has a greater incentive to make its small concern as efficient as possible (Paterson, 2010). Therefore, one of the main reasons for privatisation has been that the public sees the private enterprise as more efficient and more desirable as a consequence.

Conclusion

Although there are regions for improvement, both in Australia and other countries who have tried the experiment, the overall finding has been that privatisation of select industries has been a success (Davis & Wood, 1998). Previously it has been difficult to find reliable data on the effectiveness of programs, but more studies have been conducted in the last decade. Though there remain issues that need to be resolved, selected privatisation (managing out) has proved relatively successful (Bhatti, Olsen & Pedersen, 2009). The efficiency with which privatisation works and evidence from other sources has proven that certain programs can be more effective if they are managed in the private sector. The further test is now being conducted by nations, such as the UK and Greece, which have been forced to cut public services. These countries are either systematically cutting public services, or they are partnering with private groups to ensure that the service continues to be offered to the public. Following the teachings of Hayek and other conservative economists has led to a greater diversity of service and better management also. Though there are problems with the implementation of the managing out imperative, it has worked to provide services in a more efficient manner.