Contextual Basis of Public Policy Development and Analysis.pptx

This is a contextual basis for Public Policy Analysis

1. Contextual Basis of Public Policy Development and Analysis MAFGEN C. JAMISOLA-CAPANGPAGAN

2. Outline of presentation Political-economic context Legal framework for the market economy to operate effectively Market exchange and market failures Government responses and government failures New Public Management approaches

3. Political-economic context capitalism a market-oriented political economy or system of production and exchange control over the property required for production is concentrated in a small section of the populace liberalism primacy of the individual as having inalienable rights (own property, enter into contracts, etc.) linking capitalism and liberalism as a system of market-based exchange based on individual property rights

4. Political-economic context democracy elected representative government electorate consisting of the entire adult population votes carry equal weight allowed to vote without state intimidation liberalism and capitalism - individual rights democracy - collective rights liberal-democratic capitalist state ( liberal democracy ) describes countries with both systems in place

5. Political systems unitary system – clear chain of command linking the different levels of government together in a super/sub-ordinate relationship federal system – existence of at least two autonomous levels of government within a country not bound by super/sub-ordinate relationship

6. Political systems parliamentary system – executive is chosen by the legislature from among its members and remains in office as long as it enjoys majority support in the legislature presidential system – executive is separate from the legislature, is usually elected directly by voters, and need not enjoy majority support in the legislature

7. Economic systems economic systems respond to two basic economic facts : economic wants are virtually unlimited economic resources are scarce economic systems differ on two distinctive features : ownership of the factors of production method of coordinating and directing economic activities

8. Major types of economic system market economy (also known as capitalism or private enterprise system) private ownership of resources markets and prices coordinate and direct economic activities command economy (also known as socialism or communism) government ownership of resources central planning coordinates and directs economic activities

9. The interaction between market and government Legal Framework Market Failures Market Exchange Government Responses Government Failures NPM Approaches

10. Basic government function in a market system providing the legal framework and the services needed for a market economy to operate effectively generally limited to establishing the “ rules of the game ” creating and protecting property rights providing contractual rights and enforcing them ensuring fairness in market exchange

11. Characteristics of a perfectly competitive market large number of sellers acting independently individual sellers produce a homogeneous product individual sellers are price takers individual sellers can freely enter and exit the market

12. Conditions for fair market exchange buyer and seller have equal bargaining positions buyer and seller are both fully informed buyer and seller can exclude non-subjects of exchange the object of exchange must be divisible into exchangeable units consequences of the exchange process should be internalized conditions of exchange are consistent with social consensus of fairness

13. Reasons for market failure monopoly or monopsony power - producers or consumers may have market power that will enable them to extensively affect or control the price of a good information asymmetry - producers or consumers may have incomplete information and may therefore err in their production and consumption decisions

14. Reasons for market failure externality - a production or consumption activity may have an indirect effect on other activities, whether benefit or cost, that is not reflected directly in the price of the good public good - some socially desirable goods may not be produced because once made available for some consumers, it is difficult to prevent others from consuming it

15. Ethical and equity considerations market distributes goods according to willingness to pay some sectors of society may not have the ability to pay for goods that they may need society, in general, regards some goods and services as an entitlement or a right ethical and equity questions inevitably arise and intervene in markets

16. Policy instruments used by government policy instruments used by government are largely based on the distinction between public and private provision of goods and services Voluntary instruments (market, family and community, voluntary organizations) Compulsory instruments (regulation, public enterprise, direct public provision) Mixed instruments (information, subsidy, tax, auction of property right)

17. Policy instruments most policy instruments are to some degree “substitutable” choice of policy instrument is a complex matter the task of government in public policy making is to select an instrument or combination of instruments that is most appropriate for a particular situation

18. Principal-agent relationship people as “principals” and government as “agent” government acts as perfect agent when it fully internalizes the people’s welfare when government fails to achieve its intended outcomes, thereby failing to promote the social good, there is government failure

19. Reasons for government failures problems with collective decisions intensity and ranking of preferences not reflected in voting process, bundled choice problems concerning the agent unclear mandates or assignments, opportunistic behavior, lack of right incentives weaknesses of governance institutions lack of transparency, lack of accountability, regulatory capture, bureaucratic capture

20. New Public Management approaches body of managerial concepts based on ideas generated in the private sector and applied in the public sector believes that the performance incentive and the disciplines of market environments can be utilized to improve public sector performance culture becomes market-based (“enterprise culture”)

21. Purpose of the new paradigm in governance improve public sector effectiveness enhancing managerial accountability improving responsiveness improve efficiency to reduce public expenditure

22. Differences of the old and the new paradigm in governance In terms of functional role OLD NEW Provide services Steer provision of services Serving people Empowering people Rule-driven Mission-driven Focus on inputs Focus on outputs Process orientation Results orientation Policy for organization Policy for customers

23. Differences of the old and the new paradigm in governance In terms of execution of role OLD NEW Spend money Generate money Policy driven change Market driven change Centralized structure Decentralized structure Administrative hierarchy Autonomous manager

24. The interaction between market and government Legal Framework Market Failures Market Exchange Government Responses Government Failures NPM Approaches

25. A perfectly competitive market generates efficient allocation, but efficient allocations are not necessarily equitable . The market generally works on voluntary exchange and competition to achieve efficiency goals . T he government generally works on political authority and coercion to achieve equity goals . The key challenge for policy reform is finding the optimal mix to attain a better balance between these two major competing goals - efficiency versus equity .