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Competition and the public sector

April 23, 2012

Chief Executive magazine carried an interesting extract from a New York Times article on competition between government entities. It suggested that more overt competition could benefit society.

“This week, The New York Times asked if governments should compete like business rivals. Competition, which is at the heart of the marketplace, is something that governments can benefit from too. If competition can help keep prices low and can incentivize continual innovation in businesses, there’s no reason that it can’t do the same for governments.

Here are some of the governance benefits of competition as listed by the Times (most examples are in relation to state and local governments as it is easier to move towns or states than it is to emigrate to another country):

  • Wise  use of tax dollars
  • Managers remain alert
  • Governments cannot exert monopoly over residents
  • Taxes remain reasonable in relation to public services

Citizens can act like consumers and go elsewhere if they don’t like what they’re seeing. If you find something you need at one store, but know that you could find the same thing for less money next door, wouldn’t you go next door? The same can be said for a town’s public services and tax rates. Competition can keep your government vying for your citizenship.”

While there is some truth in this proposition, it seems to me that there are also many difficulties. For example, what happens if a particular state or authority decides that social care is an avoidable expense and it therefore wants to encourage all old people to move elsewhere? And what happens in a period of relative economic decline, when some residents find they have nowhere else to go?

In reality, there is of course some level of competition between countries and within countries even now. Tax rates, the nature of services offered, the quality of education are all examples that quite evidently result in people ‘voting with their feet’. How much further can that really go without simply adding to social inequality and creating even more extreme ghettoes of wealth and poverty?

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