Working Paper
Provision of Public and Merit Goods

This paper is part of a larger UNUIWIDER research project which examines the problems of the provision of basic social goods, such as health care, education, maternal care and safe water, in the developing countries. These services have characteristics in common with quasi-public goods, and the debate on their provision and financing has revolved around two topics: state provision and market provision (based either on the concept of market failure or government failure). We are here interested in new models of provision according to which, in addition to the state and the private for-profit sector, the non-governmental sector and civil society play an important role. We have also introduced most of the issues to be studied further during the project. To find an optimal model for provision, our attention, instead of being devoted to two players, the state and markets, should be focused on the interaction of four agents: the family, the state, the private for-profit sector (usually called the 'market') and the non-governmental non-profit sector ('civil society'). The picture of provision is incomplete if any of these players are overlooked. The paper first offers an overview of the current problems in the provision of public services in developing countries. Second, the arguments concerning market failure and state provision are reviewed, together with those on government failure and market provision in an historical context. Then, the actual policy mix for provision is examined. This varies from country to country. The origin of current failures is not always clear. Are the failures due to imperfections in the market or to policy imperfections? As an optimal mix of providers, the study suggests a situation in which the combined effect of market and public failures is minimized. We also believe that this 'new' model requires the interaction of different players and that the players have unique strengths and weaknesses which need to be assessed in order to find the optimal mix. We find that the strengths of non-profit organizations may be centred on the ability to avoid certain collective action failures and especially the use of participatory methods to motivate people and deal with the problems of information more efficiently than competitive organizations are able to do. Finally, problems in social policy implementation are studied, with a focus on the role of institutions and social capital. We argue that weak institutions and insufficient social capital are the major reasons for weaknesses in social service provision in virtually all developing countries. In conclusion, we argue on behalf of the promotion of human and social capital as instruments in the development process. Government involvement is needed in order to set the targets and goals of provision. The capacity of the people must be utilized, and to accomplish this the participatory approach and the involvement of non-profit non-governmental organizations are essential.