The Public Purpose
Number 42 - February 2001

A Hierarchy of Government Action:
Government Products and Services and the Market

A strong economy requires efficiency in both the private and public sectors: The strength of the American economy depends on efficient use of resources public as well as private. Because government spends a large percentage of the gross domestic product, it must be efficient.

Government often spends too much to provide a service: Too often, government spends more than necessary to produce a public service, retarding international competitiveness and economic growth and contributing to public cynicism. There are two reasons for this.

Government-produced services are immune from the competitive incentives that force private companies to control prices and satisfy customers as a prerequisite for survival.

Government often focuses on the intricate details of service production, paying insufficient attention to setting public policy and losing sight of service objectives.

Government often is incapable of objectively evaluating the services it directly produces.

The essential role of government is deciding: The essential function of government is deciding. Government what it has decided should be done. But equally it may not. Its basic intention is simply to see that what should be done is in fact done. (Citizens League of the Twin Cities)

This means, for example, that a city's role is not to collect the garbage, but to see that the garbage is collected. This is not simply an argument for reducing government's functions; it is an argument for performing public functions in the most cost-effective manner.

Government must be results-oriented; it must have a clear vision of its objectives and be sufficiently free from day to day operational concerns to focus attention on those objectives. Government should concern itself with its essential mission public policy.

Principles: Application of the following principles will secure public services for the lowest possible cost, minimize the tax burden on the citizenry, and maximize economic growth.

  • First, government should not compete in commercial markets. Government should not produce goods or services that are supplied by the commercial market.

  • Second, government should subsidize users, not producers. Government should use the commercial market to provide public services, wherever possible, by subsidizing users rather than producers. (For example through vouchers.)

  • Third, where producer subsidies are unavoidable, producers should be selected through a competitive process (such as competitive contracting).

  • Fourth, where producer competition for the entire service is infeasible, support services should be subject to competition.

(c) 2001 --- Wendell Cox Consultancy --- Permission granted to use with attribution.
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