Revisited draft 15 November 2010
Basic Considerations regarding the Provision of Public Services, Public Service System Reform and Fiscal Reformto finance Public Services: An Overview with some reflections on the case of China[1].
Roberto Villarreal and Xinxin Cai[2]
Abstract
This paper focuses on the importance of public services for economic and social development and analyses a variety of challenges faced by the public administration to foster their delivery. The notion of public services is discussed in non-technical terms and three broad categories of public services are discussed: State or government services, social services and infrastructure services. While there is some overlapping among said broad categories, these prove useful to highlight fundamental differences in the nature and characteristics of the specific services typically comprised in each one. The paper presents the most common challenges for public policy regarding each category, in connection with: coverage, quality, costs, social equity and inclusion, financing and delivery either directly by the public sector or through some sorts of partnerships with the private sector or civil society organizations. While the discussion applies in general to all countries, many particular bibliographic references to the case of China are included about every aspect of public service delivery. At the end, some considerations are made about an overall strategy for the People’s Republic of China to improve the delivery of public services, within the XII five-year national development plan.
Introduction
The People’s Republic of China has undertaken large reforms over the last decades, mainly about its economy. In a gradual and ordered manner, the Chinese government has followed strategies for opening up, which are progressively transforming the completely State lead and operated economic system of the third quarter of the twentieth century, into a different one in which markets and the private sector play increasingly important roles in determined productive sectors and geographical regions, while the public sector continues to exert fundamental functions and controls the overall transformation process[3]. Besides attaining high growth rates with relatively low inflation[4], China has succeeded in lowering poverty (as measured by the number of people with daily income lower than 1.25 dollars)[5]. Yet, Chinese and international analysts agree that much remains to be done and, at the same time that many ongoing public policies need to be continued to maintain these economic trends, additional ones are called for to address growing economic inequalities observable in the personal and regional distribution of income[6], and to meet the growing demands of diverse population groups for further improvement in the living conditions, as well as for social and political change.
This is well recognized by the Chinese authorities and the National development strategies in place seek to address the existing challenges in a proactive way. The Chinese Premier, Wen Jiabao, in a widely diffused interview recently granted to a global news network[7], summarized the principal development aspirations of the country as follows: “To let everyone live a happy life with dignity. To let everyone feel safe and secure. To let the society be one with equity and justice. And to let everyone have confidence in the future.” It is expected that leadership from the Communist Party will continue to pursue the necessary policies to these aims, and that institutional and political changes will be prudently followed.
One of the many areas about which Chinese government officials, researchers and practitioners are actively exploring further possibilities for reform and improvement, is that of public services. The reasons are more than a few. In the first place, still large percentages of the population lack access to basic public services, and considerable proportions of the population perceive that the quality of public services is unsatisfactory. This negatively affects not only their living conditions, but also their trust and support for government. In addition, deficiencies in the provision of public services negatively affect mid- and long-term development opportunities, for the individuals and households, communities, regions and the country as a whole: competitiveness is constrained, as well as the possibilities for human and social development. Finally, improvements in public services seem unlikely to be attained by the mere extension of pro-market or privatization policies, or by the internal reform of Public Service Units[8], but rather appeal to a complex combination of regulatory, public administration and organizational changes, including the growing participation of citizens and the private sector, in ways and to extents which are not always clear.
While numerous and good quality studies have been conducted in this regard by qualified individuals and research institutions[9], the intellectual debate and the policy making process continue to demand additional analyses at the theoretical and empirical levels, including consideration of experiences and practices from other counties. Proof of this is the inclusion of the section on “Provision of Public Goods, Public Service System Reform and the Public Fiscal Reform”, as part of the conference “Transformation of Development Models and China’s Reform in the 12th Five-Year Plan Period: A New Starting Point, New Situations and New Challenges”, co-organized by the China Institute for Reform and Development (CIRD) and the German Agency for Technical Cooperation (Deutsche Gesellschaft fur Technische Zusammenarbeit, GTZ), to which thispaper is submitted.
The objective of this paper is to present a number of considerations deemed of fundamental importance for designing and implementing adequate public policies to enhance the provision of public services in a variety of countries, including China. In particular, the paper distinguishes three broad classes of services: State or government services, social services and infrastructure services. For each class, the nature of the respective services is discussed and comments are made on how these classes of services have been approached in diverse ways over history from the public policy perspective. The typical challenges or problems faced in respect of each of these classes are discussed and public policies generally adopted to overcome those problems are summarized, including basic considerations on related fiscal issues. The paper also sheds some light on the involvement of non-government actors (the private sector, citizens and civil society organizations) in the provision of public services, and highlights that neither privatization nor citizens’ engagement are a panacea to solve at once all types of problems usually observed about the three classes of services mentioned above. Rather, it is recommended that public-private partnerships and citizens’ engagement be included to address well targeted specific challenges about the provision of public services, under the overall strategies determined by the public administration. Along the paper, conceptual arguments are presented and references are made to available literature on public services in China. In an appendix, some related case studies from diverse countries are briefly revisited.
The paper is aimed at practitioners and public policy makers involved in the field of public service provision. Essentially, it revisits a wide number of related issues that should be taken into consideration when designing reforms. It is expected that this paper will complement those from other participants in the conference just mentioned and, possibly, will contribute with some additional insights to the vast knowledge on the matter already held by Chinese policy makers and researchers.
The organization of the paper is as follows. Section 1 elaborates on the importance of services, in general, to the macro economy and, over the mid- and long-runs, to economic and social development. Section 2 contrasts the category of services which are expected to be available (that is, physically accessible and economically affordable) to all individuals in similar or identical conditions, against another category of services about which that expectation does not hold. Using these two categories of services as a background, three different families of services are analyzedfrom the perspectives of economic analysis and public management: State or government services, social services and infrastructure services. Finally, Section 3 contains some general conclusions and presents some ideas on how several elements of public policy could be coherently integrated into China’s national development strategy. In the Appendix, interesting case studies on innovative practices for public service delivery are presented.
1. The importance of services
Services consist of activities, which directly satisfy a variety of needs of people and businesses. Their nature is quite diverse. To mention only a few examples: haircuts, preparation of meals, teaching, child and health care, accounting, technological or scientific research, construction, cleaning, waste collection and processing, transportation of people or products, storage, marketing, financial asset management, transmission of wave or electronic signals, statistics record keeping, regional planning, water treatment, customs and taxes administration, law making, provision of justice, police and defense, protection of the natural environment, etc. Because of their multiplicity, it is impossible to list or enumerate all services.
These activities are important in many ways. First, some services have big impacts in the quality of life of people, and for this reason individuals and households allocate to them a considerable amount of their budget. As it can be seen in Table 1, as a proportion of consumers’ expenditures, consumers in China spent on a few key services a large percentage of their income: 12.6% on transportation and communications, 12.1% on education and recreation, and 7% on healthcare. The sum of these three represented close to one third of consumers’ expenditures. Moreover, expenditure on these services has increased very markedly, as it is normally the case in all countries as income growths: the proportion of the consumers’ budget allocated to transportation and communication augmented by 7.4 percent points, and in the cases of healthcare and education the increases were 3.9 and 2.7 percent points, respectively.
TABLE 1
CONSUMER EXPENDITURES ON SERVICES IN CHINA, 1995-2008
Expenditure on Services as Proportion of Private Consumption in China (%) / 1995 / 2000 / 2007 / 2008 / Absolute Variation (1995-2008)Percent Points
Transportation and
Communication / 5.18 / 8.54 / 13.58 / 12.60 / 7.42
Education and Recreation / 9.36 / 13.40 / 13.29 / 12.08 / 2.72
Household Facilities and
Utilities / 7.44 / 7.49 / 6.02 / 6.15 / -1.29
Health / 3.11 / 6.36 / 6.99 / 6.99 / 3.88
Other / 3.25 / 3.44 / 3.58 / 3.72 / 0.47
Source: China Statistical Yearbook (2008, 2009), compiled by National Bureau of Statistics of China, China Statistics Press.
In particular, certain services are absolutely essential for human functionings, like improved water and sanitation. In developed countries, practically the entire population accesses these services. Unfortunately, in developing countries, not all people do. Table 2 shows that, as of 2008, in Germany the totality of the population had access to improved water and sanitation, regardless of whether they live in urban or in rural areas. In Canada, the same was also observed, with only a negligible lower access to improved water in rural areas (99%). In Turkey and Mexico, access rates ranged between 87% and 100%. In Brazil and South Africa, these access ratios were noticeably lower, but still reasonably high. Yet, in China, access to improved water in rural areas was only 82% and access to improved sanitation in urban areas was just 58%.
TABLE 2
SOME INDICATORS ON WATER AND SANITATION SERVICES IN CHINA AND OTHER COUNTRIES, 2008
Water & Sanitation / China / Brazil / Canada / Germany / India / Mexico / South Africa / TurkeyImproved sanitation facilities, urban (% of urban population with access) (2008) / 58 / 87 / 100 / 100 / 54 / 90 / 84 / 97
Improved water source, rural (% of rural population with access) (2008) / 82 / 84 / 99 / 100 / 84 / 87 / 78 / 96
Improved water source, urban (% of urban population with access) (2008) / 98 / 99 / 100 / 100 / 96 / 96 / 99 / 100
Sources: Infrastructure, World Bank, ;
Urban Development, World Bank, .
Besides, services are also economically important for employment and income generation for the population. Due to their large diversity, services comprise activities of varied technological complexity, which employ workers of many different skill levels. Thus, some services are intensive in the use of low-skilled labor and create low-productivity jobs for people with limited education, while other services demand highly skilled and educated workers to perform high-productivity jobs (see Table 3). Thus, the broad family of services creates employment for the entire spectrum of the labor force. And, in some types of services, women are more frequently employed than men, providing an interesting opportunity to expand job creation for females.
In Germany and Canada, in 2006, services like transportation, storage, communications and finance provided 9% and 11% of total employment, respectively. Social services, like education and healthcare, represented altogether 17% and 18% of total employment, in the same order. And government services, close to 8% and 5%. In both countries, these services constitute more than one third of total employment. In Mexico, the same indicators registered 5.6%, 8.1% and 4.8%, respectively, for an aggregate 19.5%; and in Turkey, 6.3%, 6.7% and 5.5%, in the same order, adding to 18.5%. In China, the same figures recorded 8.4%, 17.2% and 10.7%, a sum of 36.3%, higher than in any of the preceding examples[10].
TABLE 3
EMPLOYMENT IN SERVICES IN CHINA AND OTHER COUNTRIES, 2006
Employment by sectors as proportion of total employment (2006) / China (Millions) / China (%) / Brazil (%) / Canada (%) / Germany (%) / India (%) / Mexico (%) / South Africa (%) / Turkey (%)Electricity (ISIC E) / 3.03 / 2.52 / 0.44 / 0.74 / 0.85 / NA / 0.44 / 0.93 / 0.42
Transport, storage and communication (ISIC I) / 6.13 / 5.18 / 4.55 / 6.32 / 5.53 / NA / 4.74 / 4.77 / 5.21
Financial (ISIC J) / 3.67 / 3.24 / 1.20 / 4.52 / 3.53 / NA / 0.86 / 10.23 / 1.07
Government (ISIC L) / 12.66 / 10.74 / 4.98 / 5.06 / 7.70 / NA / 4.82 / 18.12 / 5.49
Education (ISIC M) / 15.04 / 12.65 / 5.44 / 7.03 / 5.85 / NA / 5.34 / NA / 4.06
Health (ISIC N) / 5.25 / 4.51 / 3.54 / 10.83 / 11.31 / NA / 2.75 / NA / 2.65
Sanitation and sewage (ISIC O) / 1.22 / 1.04 / 4.25 / 4.96 / 5.70 / NA / 3.25 / NA / 4.22
Source: International Labour Office .
Note: NA means data are not available.
Addendum* / China / Brazil / Canada / Germany / India / Mexico / South Africa / Turkey
Employees, services, female (% of female employment) (2006) / NA / 72 / 88 / 82 / NA / 76 / 78 / 37
Employees, services, male (% of male employment) (2006) / NA / 50 / 64 / 56 / NA / 49 / 56 / 51
Source: Labour &Social Protection, World Bank, .
Note: NA means data are not available.
Moreover, services generate considerable labor income for the workers employed, and capital income for the investors who own the respective production facilities or the owners of the intellectual property rights on some of the technologies utilized. Services also provide significant public income for the public treasury, from the taxes levied on their production and delivery. Table 4 presents some figures about the aggregate income generated in several services, as a percentage of total national income (Gross National Product, GNP). As it can be seen, in most countries included in the table, government services range between 14% and 21%, and compare to the sum of other services typically provided by the private sector, as transportation, storage, communication and finance[11].
TABLE 4
INCOME GENERATED IN SERVICES IN CHINA AND OTHER COUNTRIES, 2006
Sectoral value-added as proportion of total GDP, 2006(%) / China* / Canada / Germany / Mexico / Brazil / TurkeyTransport, storage and communication (ISIC I) / 5.89 / 7.15 / 5.73 / 9.17 / 8.63 / 15.58
Financial (ISIC G-H) / 8.89 / 14.42 / 12.17 / 18.49 / 19.09 / 16.74
Government (pub.adm.) / 14.21 / 20.68 / 20.32 / 10.76 / 23.33 / 13.99
Education / 2.92 / 1.60 / NA / NA / NA / NA
Health / 1.52 / 2.10 / NA / NA / NA / NA
Water and environment / 0.45 / 0.22 / NA / NA / NA / NA
Sources: National Accounts Main Aggregates Database ; Statistics Canada: ; * For the China’s education, health and water &environment data source is the 2008 China Statistical Yearbook. NA means data are not available
Nevertheless, beyond these immediate economic effects on employment and income, certain services have profound impacts on social and economic developmentover the mid- and long-runs. Among these, Table 5 summarizes some of the impacts on development stemming from the following specific services: electricity, transportation, telecommunications, government and public administration, finance, water, health care and education.
TABLE 5
IMPACTS ON SOCIAL AND ECONOMIC DEVELOPMENT
FROM SEVERAL SERVICES
SERVICES / EFFECTS / IMPACTS ON DEVELOPMENTElectricity / •Physical power
•Mechanization / •People’s gradual liberation from physical work (intellectual, cultural and recreational alternatives)
•Higher capital/labor ratios
•Productivity increases
Transportation / •Territorial mobilization of goods and people
•Geographical interconnection of territory / •Rebalancing of local political and domination structures, greater political freedom
•More exchange of knowledge
•Cross-cultural influences (between different territories)
•Extension of markets and more efficient utilization of economic resources (procurement, marketing)
•Productivity increases
•More effective and fair use of public force (defense, enforcement of National law and consolidation of the Nation State)
Telecommunications / •Access to information
•Social relations
•Economic transactions
•Coordination among development stakeholders / •Expansion of social capital
•More exchange of knowledge
•Acceleration and multiplication of cross-cultural influences (between different territories)
•Multiplication of transactions
• Extension of markets
• Productivity increases
Government and public administration / •Public governance
•Provision of public goods (peace, security, Rule of Law, public regulation, protection of human rights, consumers’ and environmental protection, macroeconomic stability, etc.)
•Delivery of public services (tax administration, administration of justice, etc.) / •Enabling conditions (Rule of Law, administration of Justice, enforcement of private contracts, protection of people’s rights, macroeconomic stability, etc.)
•Enhanced regulation of diverse activities to attain the public good (abuses of market power, consumers’ protection -quality and safety-, environment, etc.)
•Greater efficiency of public finance (taxes, subsidies, transfers, public debt)
Financial / •Matching of diverse needs from savers and investors, including resources and distribution of risks
•Easier access to resources available for investment
•Relative standardization of financial contracts and convenient institutionalization of financial transactions / •Increase in safety and protection for savers, particularly small ones
•Channeling of unspent income to borrowers, thus raising effective aggregate demand and reducing short-term unemployment
•Enhanced allocation of savings (goods for postponed consumption) to productive activities with highest returns (largest ratio of transformation of present into future goods), thus increase in consumption and living conditions over time
•Reduction of transactions costs, facilitation of inter-temporal transactions and increase in productivity
Safe water, sewage and treatment / •Better hygenic conditions
•Better control over infectious and transmittable diseases
•Convenient access to nearby facilities
• Protection of the natural environment / •Short-term effects on time allocation of households, and higher productivity, possibly larger labor market participation and increased labor supply (specially from women), larger incomes and reduced poverty, thus overall Immediate improvement in living conditions
•Lower child mortality, overall health improvement, longer lifespan, better physical capabilities for people and lower vulnerability
•Faster and more efficient accumulation of human capital
•More long-term savings
•Enhanced environmental sustainability, changes in differential growth of urban and rural settlements
•Long-term impacts on demographic structure (aging, dependency ratios) and changes in morbidity (infectious, contagious, degenerative and chronic illnesses)
Health care / •Reduced and more controlled incidence of threats to public health
•More effective prevention measures against diseases
•More effective clinical and therapeutic interventions against diseases / •Improved health, longer lifespan , better physical capabilities for people and lower vulnerability
•Particularly larger benefits for women (improved birth health, better maternal health)
•Faster and more efficient accumulation of human capital
•Increase in labor productivity
•More long-term savings
•Long-term impacts on demographic structure (aging, dependency ratios) and changes in morbidity (infectious, contagious, degenerative and chronic illnesses)
Education / •More knowledge available to people in the mid-term and over time
• Better reasoning, learning, scientific and technological, creative, work, communication and other skills / •Empowerment of individuals, better self-esteem, stronger self-determination
•Growing acceptance of formal legal institutions, better enjoyment of human rights, enhanced citizenship, more effective public governance
•Greater awareness and understanding of social, natural and technological phenomena, faster social, technical and scientific innovation
•Changes in social values and visions, more inclusive economic and social institutions
•More care for the environment and the sustainability of human and economic activities
•Increased capabilities of individuals, larger labor productivity
As summarized in the table, it can be stated in general thatthese services have pronounced mid- and long-term impacts, which translate into more dynamic development, faster economic growth and more rapidly improving living conditions, because they: