The Market Alternative

Abstract

Proponents of the use of market mechanisms for the management of public services claim that they will help overcome some of its inherent failings. The essential problem is argued to lie in the motivation of those who work in the public sector and the difficulties in monitoring and controlling performance. There is an inevitable tendency to inefficiency in government, so the argument goes, because there is a lack of market incentives. Critics of government argue that technological possibilities for lowering costs, raising productivity, or realising economies of scale, will tend to be ignored or not fully exploited by public servants. The costs of change are seen as high, and making changes as troublesome. Lack of incentives would not be a great problem if it was easy to monitor the performance of the public sector worker, because then, at least, rewards and sanctions could be introduced to stimulate performance or punish failure. A central purpose of the institutional changes that are being introduced is that purposes should be clearer, and standards objectively defined, and that there should be more explicit approaches to the assessment of the extent to which they are being achieved with payment and reward being tied to output.