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Procurement Perspectives: What the private sector provides municipalities

Stephen Bauld
Procurement Perspectives: What the private sector provides municipalities

While municipalities do provide some private-type programs and services to their residents, most municipal programs and services are very different in nature from what the private sector can provide.

For instance, some municipal services (e.g., city streets and parks) constitute public goods, meaning not that they are good for the public, but rather than they are non-excludable and non-depletable. Often goods of this character are even of benefit to non-users. Goods of this nature cannot be provided by the market on a fee-for-use basis because they are non-exclusive, and thus everyone has incentive to a free ride on others.

As a practical matter, services of this kind cannot be dispensed with, nor is it practical to attempt to contract around them. Other municipal suppliers lack the element of rejectability. For the most part, there is no practical alternative to the municipal water supply; there is no alternative to city sewers.

Some municipal programs or services straddle the line between public and private goods. Policing serves as a case in point. Basic policing services, law enforcement and the maintenance of public order appear to meet the test of public goods.

However, increased security levels that protect only specific private facilities (e.g., shopping malls, office buildings and entertainment areas) place an excessive drain on community policing and can be serviced on an excludable basis.

So, for instance, private protection services, such as private security guards and even detectives, are supplied as private goods. The service offered is excludable, rejectable as described above. Nevertheless, due to their own particular needs, some consumers are often prepared to pay a high price for such extra services.

Municipalities also provide some programs and services that constitute merit goods. These are goods that could be provided to a segment of the public on a user-pay basis and thus could be provided by the private sector, but which are for some public policy reason considered necessary to afford universal access.

Examples often offered by municipal governments include on-the-job work training programs, public libraries, citizens’ advice bureaus, inoculations for flu and the like. Goods of this nature are provided on a public subsidy basis in order to make them universally accessible. Public transit is often presented as a good of this type.

Another class of municipal services and programs may be described as collective goods or social goods.

These are goods that are allocated on the basis of the criterion “to each according to his needs” and are financed through taxation on the basis of the criterion “from each according to his ability.”

Social housing is an example. Housing is obviously property that can be made exclusive, simply by putting a lock on the door. Thus, a substantial part of the housing stock is provided by the private sector.

Social housing, by definition, is housing that is provided to people who cannot afford to purchase housing in the open market. The argument for the provision of social goods by government is at least as old as Christianity, and (as the description of the term suggests) is also to be found in the writings of Marx.

However, the modern justification is essentially that provided by John Dewey: “Our social affections are direct interests in the well-being of others; their cultivation and expressions is at one and the same time a source of good to ourselves, and, intelligently guided, to others.

“Taken in this light, it is sympathetic emotion imagination which make the standard of general happiness not merely the ‘desirable end’ but the desired end, the effectively working object of endeavour.”

The portion of the cost of social housing that cannot be paid for by those who live in social housing is passed on to the taxpayer.

Stephen Bauld is a government procurement expert and can be reached at swbauld@purchasingci.com.

Some of his columns may contain excerpts from The Municipal Procurement Handbook published by Butterworths.

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