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Public goods and services
The 'non-pure of quasi' public goods and services are supplied by the state and financed out of the government revenue because it is considered that their quality and/or quantity of supply would be inadequate under private provision.
PUBLIC GOODS and services are those goods and services which can’t be withheld from one individual without withholding them from all and they must be supplied communally. For example, it is not possible to exclude any one individual from ‘consuming’ national defence, or street lighting, or general police protection.

Unless the exclusion could be made, a private entrepreneur would not undertake to supply these services, because he would not have the power to force the community as a whole to pay him and he could not exclude anyone who did not pay him from consuming the good and service. Since the state can raise revenues through taxation, it alone can finance the provision of public goods. In a strict sense this definition only relates to ‘pure’ public goods and services. There are many goods and services supplied by the state which can also be supplied by the private firms. Such goods and services are: housing, hospitals, nursing homes, education, and also security systems. The ‘non-pure of quasi’ public goods and services are supplied by the state and financed out of the government revenue because it is considered that their quality and/or quantity of supply would be inadequate under private provision. Since, however, the extent to which a good is a public good is then a matter of degree. There is a room for genuine political debate about the appropriate means of provision.

In essence, therefore, the distinction between public and private provision is explained below:

The characteristics of non-exclusion and non-rivalness are necessary but not sufficient conditions for public provision of public goods and services. Relatively few goods manifest both the characteristics. Such goods are called pure public goods. Public provision of these goods is less controversial. There is a grey area of goods and services between pure public and pure private goods which is known as mixed goods.

Mixed goods and services are non-rival, but exclusion is still possible, for example, university training and policing. These goods and services can also be provided by the private sector. There are also private goods and services that the government can provide such as certain health services. Thus, it is surely not easy to lay down the manner of provision, public or private. We can also distinguish between public provision and production. In this context one basic question is: should the public or private sector be responsible for the production of a natural monopoly’s output? There are a number of considerations when we have to decide on private or public provision, namely, relative wage and material costs; the efficiency of private sector managers; administrative costs; diversity of tastes; distributional issues and so on.

The argument for and against public provision of public goods and services came up in the privatisation debate since 1970s. There has been a worldwide tendency to move away from public provision of numerous goods and services.

Privatisation basically means the transfer of assets from the government to private owners. A variety of ideological, political and economic reasons underlie privatisation. Some of these are briefly mentioned below:

  • Governments in various developing countries face increasing fiscal pressure;
  • People become impatient with the disappointing results of public sector enterprises, that is, with their production efficiency;
  • There has arisen a renewed interest in the economic theory of the free market, that is, allocation efficiency;
  • The private shareholding base has broadened because workers can exercise share opinions. More people are sharing in the successes and failures of their enterprises and hence in the national economy.
  • Public enterprises influence the size of the government and enhance its political status in the eyes of individuals and groups. Participation in decision making becomes important because it enables groups to promote their own interests. Privatisation limits the political importance of the government.
However, privatisation does create the following problems:
  • The sale of private assets yields a once-off return, while a profitable organisation has a recurring return;
  • The expected improvement in allocation and production efficiency of privatised organisations depends on whether the goods or services are priced at full cost or whether they are subject to the forces of competition;
  • Privatisation goes hand in hand with liberalisation, that is, the removal of measures that limit competition;
  • Financing the social infrastructure from the returns on privatisation can only be justified if the resources can be applied more efficiently than elsewhere by the private sector;
  • Quite often the market system fails and in that case the government has to intervene, which is not an easy task.

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