The Role of the Private Sector in Improving Public Services in Arab Nations

Most people in the Arab world believe that the state has a fundamental obligation to supply goods and services that they qualify as consider to be public services, such as health care, education, solid waste treatment, electricity, roads, and other infrastructure. The list also includes goods and services in “strategic industries” such as telecommunications, aviation, military, agriculture, and the extraction of natural resources. Arab citizens tend to view the state as a guardian angel with the primary responsibility of supplying life’s necessities. Thus, whenever the state expresses its intention or desire to intervene or engage in any sector, purportedly to protect public interests, citizens applaud the decision.

Despite the angelic image ascribed to the state, citizens constantly express their distrust of public officials, such as ministers and civil servants. They publicly and privately accuse them of corruption and view them as concerned only with pursuing their personal interests at the expense of the people’s interests. This striking contradiction between the idealized view of the state and the distrust of public officials suggests that the state and those running it are completely separate.

In some Arab countries, the state takes on an identity of its own, seemingly operating in isolation from the policy decisions of individual public officials. Yet, it is important to remember that public sector employees and the state are one and the same. Glorifying the role of the state and its obligation to act in the public interest, emphasizing its prestige, and cheering its decisions is simply an indirect attempt to improve the image of state employees. Such glorifying rhetoric provides public employees with an incentive to pursue their own personal objectives.

Some citizens point to corruption as the underlying problem afflicting the quality of public services. This perspective calls for improving public services by replacing corrupt employees with those who demonstrate honesty and integrity. Unfortunately, the real problem goes much deeper. Even in the best-case scenario—one that assumes those hired in the state apparatus possess the highest integrity and ability—the outcome of public service delivery will still be disappointing. It is not the personal attributes of the public servant that are at the heart of the matter; rather, it is the very nature of bureaucracy that leads to the decline in the quality of public services and an escalation in costs. For instance, when citizens bemoan lengthy delays in conducting transactions with a given government department, the benchmark of service quality is not another government department, as most suffer from equal levels of poor quality and complaints. Instead, the benchmark is the high quality of services encountered in the private sector.

Imagine visiting a private sector clothing store: on arrival, you are greeted by an enthusiastic salesperson who is ready to serve and assist, learn about your wants and needs, and offer advice regarding appropriate fit and color. You are readily given undivided attention, shown appreciation when you decide on the purchase, and, in the end, leave with good wishes and an invitation to return soon. On the other hand, if you visit a government office to conduct a transaction, you are likely to encounter a short-tempered civil servant who is indifferent and shows no interest in providing you with a service. Yet, in the end, you are nonetheless expected to show your appreciation and thank them.

It is not necessarily the case that said civil servant is corrupt. If the employee were corrupt, he or she would have delayed or obstructed the conclusion of the transaction to elicit a bribe. In this case, the civil servant simply does not have an incentive to do the work efficiently. The question then arises: What prevents this public employee from performing his or her work in a way that serves the best interests of citizens, performing at the same level as workers in the private sector?

Answering this question is vital because the low productivity of public sector employees leads to low-quality services from the institution that employs them (i.e. state-run agencies, companies, and sectors such as education, health care, sanitation, electricity, or infrastructure). In order to understand the dynamics influencing the quality of public services, it is important to highlight six key aspects of the system that are largely responsible for the deterioration of public goods and services.

1. Citizens Are Not Considered Customers

Both the private and public sectors value the entity paying them. In the private sector, customers pay for the services they receive and therefore have power. Accordingly, private enterprises have an incentive to attract and maintain customers, which entails providing them with the best possible good or service and remaining attuned and responsive to needs and concerns. In the private sector, the customer is king because he or she pays for the service. In the public sector, bureaucrats lack motivation to convince customers to utilize their services because the customer does not pay directly for the service. The payment of the public service is allocated by the government. In this case the government, not the customer, is the true king.

For example, revenue generated from stamp duties is not a significant source of funding for public sector salaries, nor does it cover general operational costs. Electricity bills in Lebanon and other Arab countries are subsidized and do not reflect the actual cost of providing the service. Such is the case with other public goods such as roads, hospitals, and schools. The actual cost of a public service is born by the concerned ministry. The taxpayer model (as opposed to the user-payer model) generates situations in which citizens are forced to accept poor quality services, and may even need to cajole a public employee in order to complete a transaction. Even then, the employee can refuse the delivery of a service to citizens because they are accountable to the ministry (who pays them) and not to the client.

Contributing to this problem are government ministers who consistently tolerate employees’ unhelpful attitudes. Even if ministers intend to hold public servants accountable, they typically cannot distinguish between efficient employees and inefficient ones. Even if they can, it is very difficult to find solid proof and successfully complete a complex disciplinary process, and firings are rare. In the private sector, customers withhold from buying if the good or service is not satisfactory. This can result in the disciplining or firing of employees who provide poor customer service — and a loss of revenue and reputation for the business.

2. The Compulsory Nature of Payment for Public Services

Some proponents of an expanded government role in the economy praise the fact that public services are provided “for free.” In doing so, they ignore that the cost of public services is in fact borne by citizens who, as taxpayers, cannot simply take their money elsewhere. Government employees lack incentives to serve the public because members of the public are forced to pay the cost of these services through taxes regardless of the quality of services they receive. Walking away from the service provider does not typically impact or penalize the state employee directly because taxes will still be directed toward the payment of the unsatisfactory service. Moreover, refusing the public service may be a relief to the public employee, as it lessens their workload.

Citizens pay for the cost of the service through taxes, regardless of whether they are satisfied with the quality of public education, the care rendered at the hospital, or interaction with a government employee. The coercive nature of compulsory payment can be particularly exasperating; for example, a citizen who opposes smoking must help subsidize the tobacco industry if the government invests in that sector. Simply by being a taxpayer, there is no way to avoid paying for the tobacco industry.

3. Stripping Citizens of Choices

It is not uncommon for the state or one of its subsidiaries to have a monopoly over certain goods and services, such as telecommunications, electricity, sanitation, aviation, port management, and airports. As such, people are denied the benefits of traditional market competition. For example, if citizens choose not to purchase electricity from the state enterprise because of recurring outages, they will live in the dark. If they decide not to use public roads because of congestion, they will be stuck at home. If they refuse waste management services because of poor treatment, their garbage will pile up. The list goes on. It is impossible for a citizen to purchase government-monopolized services from another provider because the state forbids companies from entering the sector, even if the companies wanted to provide the service at a lower cost and higher quality.

4. Rewarding Failure and Penalizing Success

The public sector prides itself on serving the public interest rather than seeking profit. While it is true that many public entities often incur losses, this does not serve the public interest by any means. On the contrary, these losses increase the burden on both the state and the citizen and are reflected in higher taxes and debt. Moreover, increased public investment is not linked to productivity, as many public agencies usually operate at a loss, and are also not bound by customer satisfaction. In fact, failure is often rewarded with more investment. In Lebanon, for example, if a public enterprise fails to provide a quality service, the government allocates additional funds to improve it. Year after year, Electricité du Liban (EDL) continues to drain the state budget, while at the same time citizens experience daily power outages lasting 12 hours or more.

5. Absence of Standard Measures of Success and Failure

Incentives such as seeking profits and avoiding losses—the driving forces of the private sector—are absent in the public sector. For instance, a bureaucrat might believe that he or she found a new way to improve service quality, but no one can truly examine its usefulness to clients. Even if we assume that the idea truly improves the client’s wellbeing, the public servant will still be faced with the problem of determining whether the benefit of this novelty outweighs its cost. In fact, only the users of the service can assess the benefits and decide whether they are willing to pay the increased cost associated with the improvement. Because citizens are obligated to pay for these services regardless and cannot switch to another provider, it is very difficult to evaluate the reasonableness of the increased cost associated with any quality improvements. Moreover, it is extremely difficult to reverse an investment made in public services. Since the concept of profit and loss is absent or irrelevant, what then are the criteria to assess public investment?

Recently, public schools in Lebanon were equipped with security cameras. The absence of profit and loss considerations makes it difficult to evaluate the effectiveness of this policy decision. Perhaps the cameras improve the schools’ monitoring capabilities, as well as students’ safety. However, a number of key questions remain unanswered: Does the level of disorder in the school justify the installation of cameras? Do the cameras’ benefits outweigh their costs? Unfortunately, one is unlikely to find answers to these questions due to the nature of the public sector. If parents are willing to pay higher tuition for extra safety generated by cameras, then it would be a good investment. However, if parents are not willing to pay higher tuition, it is a bad investment that would generate losses for the schools, as parents move their children to schools with more reasonable tuition and less costly security measures. In the case of public schools, customers do not pay for the service directly so it is difficult to know whether the investment is beneficial or not from their point of view.

6. A Focus on Means Rather Than Results

There is always room to improve any service, private or public; the only limit is how much the customer is willing to pay. Because the user does not pay directly for services in the public sector, there is no limit to additional funding requests to improve services. It is conceivable that, following the installation of surveillance cameras, a bureaucrat would imagine additional ways to improve schools’ security: metal detectors, movement-monitoring laser equipment, biometric devices, and other security gadgets. While all such equipment could improve students’ safety, one needs to ask whether such improvements justify the associated costs.

It is not surprising that decision-makers continue to establish new guidelines, rules, and regulations in an effort to contain the justifiable but seemingly endless requests for additional funding by public entities, especially in light of strained state budgets. Although rules and regulations can sometimes curb wasteful spending, they create bureaucratic hurdles that often detract from a state employee’s autonomy, innovation, and customer service. The public administration ends up with nervous bureaucrats who are afraid of breaching rules and regulations, and are therefore driven to a point where they become passive and lose interest in providing good customer service.

Conclusion

Is there a way out of this quagmire? It is possible to divide the solution into two stages. In the first stage, efforts should be made to halt any expansion of the scope of state intervention in sectors in which it is already operating. The state should not intervene further in the economy and service provisioning because it is unable to effectively and efficiently manage existing public providers. Citizens should dispel the illusion that the state, even with good intentions, has the capacity to resolve all problems through the direct provision of goods and services.

In the second stage, public institutions should shift from a taxpayer model to a user-payer model, and government should allow more competition in markets where monopolies prevail. It is important to underscore that state obligations are not limited to ensuring the provision of public services, improving infrastructure, and supporting strategic sectors of the economy. Government also has an obligation to ensure an adequate standard of dignified living for its citizens: sufficient food and nutrition, clothing, housing, and positive wellbeing. However, this should not be understood to mean that the state should provide every good and service itself. In the event that it does, sooner or later, this engagement will result in service quality deterioration. The current state of affairs in the public sector of Lebanon and other countries in the region must be reviewed, and drastic reforms must be introduced to build a better future.

Dr. Patrick Mardini is the founder and president of the Lebanese Institute for Market Studies (LIMS), an independent think tank that aims to restore economic freedom in Lebanon by working with policy makers. He is an assistant professor of finance at the University of Balamand, where his research focuses on monopoly and competition. He holds a Ph.D. in economics from Paris Dauphine University. LIMS was a CIPE partner for the 2015 MENA regional program. In this program, LIMS led an awareness campaign that focused on the need to repeal the electricity subsidy in Lebanon, stop government investment in the sector, and open the electricity market to free competition in order to improve service provision.

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CIPE

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