Academic journal article International Journal of Labour Research

The Role of the Public Sector in Combating Inequality

Academic journal article International Journal of Labour Research

The Role of the Public Sector in Combating Inequality

Article excerpt

In the last decades, the merits of the public sector, including public infrastructure and services, have mostly been discussed with respect to their efficiency. The general assumption was that public providers of goods and services tend to underperform compared with private-sector companies and therefore present a drag on the economy. Economists in the developed and developing world have advised governments to privatize not only state enterprises but also public infrastructures in order to boost productivity and economic growth, or to use public-private partnerships (PPPs) and subcontracting to emulate private-sector business strategies in cases where privatization is not possible.

The view of the public sector as a liability rather than an asset was confirmed by the recent politics of crisis management in Europe and elsewhere. Representatives from the European Commission, the European Central Bank and the International Monetary Fund (IMF) have required those Member States that were dependent on external funds from the European Stability Mechanism to drastically cut back public-sector spending, including spending on health care and education. Other governments did so voluntarily in anticipation of being downgraded by the American rating agencies. As a result, countries across Europe are currently in the process of downsizing public-sector workforces. The United Kingdom alone has eliminated almost half a million jobs since the start of the crisis (Hermann, 2013).

While downsizing is supposed to improve public-sector productivity, officials have paid little attention to the redistributive effects of public services. Even though redistribution is not the primary objective of public-service provision, equal access to essential services such as health care, education, transport and energy affects low-income earners differently from high-income earners. This article attempts to fill this gap. It discusses the effects of public services on income distribution and the role of the public sector in combating inequality. At the same time it also explores the consequences of privatization, marketization and of public-sector cuts for social equality and social justice.

The article starts with a theoretical and historical account of the public sector and its role in a predominantly private and market-based economy. The next part presents the rationale and the political underpinnings of the shift towards privatization and marketization, followed by a discussion of the redistributive effects of public services. The article ends with a description of public-sector retrenchment during the crisis and some concluding thoughts.

The evolution of the public sector

The public sector is a contested concept and as such open to different interpretations. What seems to be clear is that the public sector deals with government provision, and that it is more than government administration. It includes a variety of economic activities that are carried out by public establishments rather than private companies. According to orthodox economic theory, the public provision of goods and services is acceptable when they have certain qualities which prevent markets from functioning in this area (Altvater, 2004). For the provision of public services, two conditions are particularly important: first, the existence of positive externalities impacting on third parties that are not directly involved in the market transaction. Here the classic case is the health-care sector: it contributes to containing infectious diseases, which benefits not only those who seek treatment, but also society at large. Second, the existence of so-called natural monopolies, which makes it impossible or undesirable to have more than one provider for a particular service (Baumöl, 1977). Here the classic case is the network industries such as electricity, gas and water. Up to the 1980s it was widely believed that the government or non-profit organizations should provide these services (Clifton, Comín and Díaz Fuentes, 2003). …

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