Discuss in detail the reason(s) for public sector failure. Public economics is the study of government policy through the lens of economic efficiency and equity. Public economics builds on the theory of welfare economics and is ultimately used as a tool to improve social welfare. Welfare can be defined in terms of well-being, prosperity, and overall state of being
Discuss in detail the reason(s) for public sector failure (link them to typical problems experienced through public sector provisioning) (Public Sector)
INTRODUCTION
The government responds to market failures by establishing and maintaining state owned enterprises to provide public goods and services 🗸🗸
[Any other relevant introduction]
[Max 2]
BODY: MAIN PART
-  Accountability 🗸
- It is required to give an explanation of one’s decisions, actions and expenditures over a period of time 🗸🗸
- There are mechanisms for evaluating government’s economic and financial performance 🗸🗸
- That the desired quantities and quality of goods and services for which taxes are raised are delivered 🗸🗸
- That monopolies, corruption, nepotism, incompetence and apathy does not occur 🗸🗸
- Two important elements of accountability is participation and transparency🗸🗸
- Ministerial responsibilities, i.e. the ministers of government departments are responsible for decisions and actions and expenditures 🗸🗸
- Parliamentary questioning arises and members of the government departments have to respond 🗸🗸
- The national treasury is responsible for treasury control 🗸🗸
- The auditor-general reports annually in writing on each government department🗸🗸
- Efficiency 🗸
- Public goods are efficiently provided if Pareto efficiency is achieved 🗸🗸
- That is if resources are allocated in such a way that no one can be made better off without making someone else worse off 🗸🗸
- Bureaucracy the official rules and procedures. 🗸🗸/insensitivity to the needs of their clients 🗸🗸
- Incompetence- the lack of skill or ability to do a task successfully🗸🗸/May have improper qualifications/or an attitude of apathy 🗸🗸
- Corruption- the exploitation of a person’s position for private gain /taking bribes, committing fraud, nepotism 🗸🗸
- The problem of assessing needs 🗸
- State-owned enterprises do not operate according to the forces of supply and demand 🗸🗸
- It becomes thus very difficult for state-owned enterprises to assess needs and they are thus prone to under- or over-supplying public goods and services 🗸🗸
- The census and other household surveys as well as local government structures provide this type of information 🗸🗸
- Since resources are scarce, government must then decide which needs and whose needs are to be satisfied 🗸🗸
- In the private sector houses are built according to the price that people are able and willing to pay 🗸🗸
- In the public sector housing is regarded as a social responsibility and authorities supply them according to the needs of people 🗸🗸
- Pricing policy 🗸
- In a market economy prices are determined by supply and demand 🗸🗸
- The objectives of firms are to maximise their profits and they usually set prices to achieve this objective 🗸🗸
- Government does not pursue the profit maximisation objective 🗸🗸
- Government takes into account certain social, economic, political and environmental conditions as well as public opinion 🗸🗸
- Free-of-charge services- this is met from taxes 🗸🗸 and applies to most community goods and collective goods 🗸🗸 (e.g.) defence, police whereby charges and toll fees are levied 🗸
- User-charges 🗸 option to charge depends on technical reasons 🗸🗸 (e.g.) cost of providing a double lane road could be recovered by toll charges 🗸 Economic reasons 🗸 such as services like water and electricity 🗸 that have a zero price 🗸 political reasons 🗸 where income distribution is significantly unequal, administrative rationing according to need takes place 🗸🗸 (e.g.) public health and education 🗸
- Direct and indirect subsidies direct subsidies are used to cover part of the costs 🗸🗸 (e.g.) urban bus service 🗸 and an indirect subsidy is used to write off accumulated losses or deficits 🗸🗸
- Standing charges -called availability charges 🗸🗸 (e.g.) water and electricity 🗸 standing charges goes to meet fixed costs and the price per unit consumed covers variable costs 🗸🗸
- Price discrimination – different users have different elastic ties of demand for a good 🗸🗸 (e.g.) commercial and manufacturing businesses pay higher rates than households and they pay on a sliding scale🗸🗸
- Parastatals 🗸
- State-owned enterprises that either render a service or when an existing enterprise is nationalised 🗸🗸
- They focus on making a profit and maximizing cost at the expense of the needs of some groups 🗸🗸 (e.g.) Iscor 🗸 SABC, 🗸SAA, Spoornet 🗸
- Privatisation 🗸
- refers to the process whereby state-owned enterprises and state-owned assets are handed over or sold to private individuals 🗸🗸
- cost of maintaining and managing state-owned enterprises are high which can lead to higher taxes and larger public debt 🗸🗸
- State-owned enterprises are not run as efficiently as private enterprises 🗸🗸
- Nationalisation is the process whereby the state takes control and ownership of privately owned assets and private enterprises 🗸🗸
- It includes contracting of services, public-private partnerships, increasing competitiveness🗸🗸
[Max 26]
ADDITIONAL PART
Possible problems in your community or elsewhere
- Lack of drinking water due to burst pipes 🗸🗸
- Lack of electricity due to lack of infrastructure (load shedding) 🗸🗸
- Lack of schooling – no buildings available – lack of maintenance 🗸🗸
- Lack of health services due to lack of staff, infrastructure, strikes 🗸🗸
- Lack of adequate housing (RDP) 🗸🗸
[Max 10 marks – List of examples max 5 marks]
[Accept any other relevant answer]
CONCLUSION
If the above problems are not dealt with timeously by government, government will continue to fail its people in terms of service delivery, seeing many protests occurring regularly 🗸🗸
[Any other relevant higher order conclusion]
[Max 2]