It is inefficiency that separates public from private sector

By XN Iraki

The standoff between the Ministry of Education and investors in education — the private schools brought to fore a bigger issue; the yawning gap between the public and private sectors in terms of innovations, efficiency and effectiveness. The differences in performance between the private schools and public schools is not unusual, it is evident in other sectors such as health. It is not unique to Kenya; it is a worldwide phenomenon.

Why has the public sector failed to measure when it comes to provision of services? Why does it seem that the private sector is more successful in whatever it does? Will the two sectors ever match or we should resign to the fact that the public sector will always follow?

We could use basic economics to explain the yawning gap and suggest solutions. First, let us not delude ourselves that we can do without the public sector. We shall always need a government. With the new Constitution, the public sector will become even more critical because the successes or the failures of the central Government will most likely be replicated at the counties.

The main reason why the public sector seems inefficient has to do with monopoly. The Government and its institutions are by nature and design monopolies. Without competition, innovation and efficiency suffers. Who else can give you a passport, or a certificate of good conduct? Who else can give you a marriage certificate or driving licence? It is likely to be the Government.

As long as the Government enjoys this monopoly, it is unlikely to be as efficient as the private sector, which has lots of competition. Long time ago, the Greeks noticed the inefficiencies resulting from this monopoly. As a result, they brought competition in the Government through democracy, so that those who constitute the Government can be replaced if they do not perform.

But in most developed countries, the concept of democracy, conflicts with our traditions, where leaders were hereditary, were "big men". Interestingly, even apparently developed countries like Russia suffer from the big man syndrome. In addition, those elected in developing countries quickly learn that monopoly is good for them, even if not good for the nation.

That is why civic education is the best antidote against monopolistic tendencies by leaders, with the addition of the recall clause in the new Constitution being a potent weapon against leaders flirting with monopolistic behaviour.

Inadequate incentives

The other cause of the gap in performance between the public and private sector is lack of incentives. We all react to incentives, often in amazing ways. If it rains today, you will see umbrellas on the streets, not because the seller loves you and your hair, but he wants the profits, the incentives from selling the umbrella. Public sector incentive system is often distorted and does not always motivate and it instead penalises the hard workers. There have been attempts to correct this system through performance contracting and appraisal system. Most public sector workers often feel they are not fairy remunerated, but the counter-argument to this is that at times, they get overpaid if you consider the work they do.

The joke oft-quoted, though from communist era is that the Government pretended to pay its workers, who in turn pretended to work. With a watertight incentive system, commonly called scheme of services, the effectiveness of the public sector can be improved.

Setting such a system is hampered by the fact that the output in the public sector is hard to measure. How do you measure the productivity of a diplomat? Further, the incentives in private sector are better aligned to productivity.

Way forward

The public sector also suffers from "job protection."

It is very hard to dismiss workers in this sector. Observers argue that is what makes governments strong; they have a core of "defenders" who know their job is secure. This protection also encourages conformity and lack of innovation.

In the private sector, performance is the job security; in the public sector it could be a big man. In fact, what makes politics very competitive is that the winners in elections often have control over these core jobs, through which they wield power and influence.

Since 2002, when Kanu exited from power, subsequent Government have tried to close the gap in performance between public and private sectors with some tangible results in some sectors. The popular approach has been getting employees from private sector into public sector. Kanu tried that with the dream team.

The assumption here is that the "new" employees will bring their tacit knowledge with themselves. But some find the cultures and systems not aligned to efficiency and innovations.

The Private Public Partnership (PPP) should be enhanced. No matter how efficient the private sector is, it will always need the public sector. The symbiotic relationship should be encouraged. They both have the same objective, provision of goods and services in the most cost effective way.

If Vision 2030 has to be attained, we must reinvigorate the public sector; make it more like the private sector in terms of innovativeness, competitiveness and effectiveness. That calls for a paradigm shift that may take time, but it is a pre-requisite for economic growth.