The public sector drag?

Some measures that have been taken recently within the public sector (essentially to make more efficient use of resources and to curb expenditure) bring to the forefront once more the issue about its management, its role in the economy and whether it is acting as a drag on the economy. Probably, if one listens to operators in the private sector, one would doubtlessly hear about the waste of money that happens in the public sector, about the supposed lack of accountability and that the public sector (through its taxation measures and through its inefficiencies) is siphoning off resources from the private sector that could be best spent elsewhere and is thus acting as a drag on the economy.

These issues become even more relevant as the government (that is the political arm of the executive as opposed to the administrative arm) seeks to define a clearer role for the public sector, in particular in the economy, as the government continues with its strategy of fiscal consolidation and as the government maps out its vision for the economy for the coming five years.

We speak of the public sector, which includes the public service as well as the government-controlled entities, as being one unit. People also speak of the "public sector mentality". In effect, for various reasons, the public sector has not acted in unison in the past years, to the extent that we now speak of "joined-up government". Neither can one speak of a "public sector mentality" as it would be doing an injustice to big sections of it.

The main benefits of "joined-up" government are that the public sector acts according to one policy (we have had government-controlled entities and government departments taking contradictory positions on a number of issues) and that there is a better use of the resources that are available within the whole of the public sector. It might appear easy to speak in these terms nowadays; however, it should be appreciated that we are speaking with the benefit of hindsight.

Moreover, we had to go through a process of decentralisation (even fragmentation) of the public sector to enable it to find its true role in the economy, as it had got to the stage where it got so embedded in several economic activities that it was leaving little space for private sector initiative. Furthermore, the political arm and the administrative arm had become so entangled in each other that it has taken a good 15 years for each to find their proper role.

It is hoped that the new Public Service Act would put in the final seal on the first change process in the public sector and set into motion a second process of change.

However, it is worth assessing the extent to which the public sector is or is not being a drag on the economy. One element is the contribution of government expenditure to the gross domestic product. In 2004, government consumption expenditure represented 21.1 per cent of the gross domestic product in real terms. In 2000, the corresponding figure was 19.4 per cent while in 2003 it was 21 per cent. This implies that government consumption expenditure is taking up a bigger share of total national expenditure, including investment expenditure.

In terms of employment, in 2004 the public sector took up 33.4 per cent of the total gainfully occupied population, compared to 35.1 per cent in 2000. Employment with public service departments represented 21.9 per cent of the total gainfully occupied population compared to 22.2 per cent in 2000. Thus the indication is that the public sector is absorbing less human resources than it used to previously. So, in terms of GDP, the presence of the public sector is greater but, in terms of employment, the presence of the public sector is getting smaller.

One needs to appreciate that there is a very significant chunk of public sector expenditure that is represented by social benefits. As a nation, we need to decide whether we want these benefits to remain or not. I believe they should, even if the administrative structure of the executive must ensure that benefit fraud is reduced to a minimum.

There is another significant chunk of public sector expenditure, which is related to the programmes and initiatives that are taken. A great deal of this expenditure is not controlled by the public service directly but by government-controlled entities.

Unfortunately, in some instances these entities have not provided value-for-money services and have ended up being the best payers on the island, even better than the private sector. For this we have to thank persons who were often recruited from the private sector.

Then there is the issue of working practices. One has to explain why trade unions accept one set of working practices in the private sector and demand a totally different set of practices in the public sector. It is these practices that all too often lead to inefficiencies.

On the other hand, an element of public sector expenditure was spent on upgrading the infrastructure and in creating different forms of economic activity. The private sector cannot claim that it has exploited fully the opportunities presented to it by such expenditure. All too often, in fact, it has been found wanting and has not always matched with its entrepreneurial skills the initiative shown by the public sector.

The conclusion is that, in certain instances, the public sector can be a drag on the economy. However, it has ended up being so because the private sector and trade unions have not played their part fully. I believe that everyone is part of the problem and, therefore, everyone has to be part of the solution. The economy needs to make the most efficient use of the resources at its disposal, while maintaining a strong degree of social cohesion. This requires an effective public sector and we can all play a role in achieving this.