Improving service delivery to a level commensurate with that of
a "xiaokang" society -- moderately well-off and middle
class -- will require far-reaching reform of public service units,
beginning with redefining the government's role in service
delivery, according to a new World Bank report released in Beijing
today.
The report, China: Deepening Public Service Unit Reform to
Improve Service Delivery notes that China has more than one
million public service units (PSUs), or shiye danwei, with
a labor force of around 30 million, the same as its state-owned
enterprise sector. Most PSUs were created to public service
providers. Non-state involvement in service delivery remains
limited in China today. PSU performance is therefore crucial for
improving service delivery in the public sector.?
"We hope the delivery of this report is timely and useful," said
David Dollar, World Bank Country Director for China. "Clearly, a
redefinition of the role of the government in service delivery is
one component of government reform, which has been put at the top
of reform agenda by Premier Wen Jiabao in his report to the
National People's Congress this year." "We believe that success in
this reform will unlock the great development potential of China's
services sector, and significantly improve the government's public
service delivery function," he added.
Recognizing the achievements in the past reform efforts to "push
PSUs into the market," the report points to "undesirable
incentives" they have simultaneously introduced to services
delivery. According to the report, nearly half of PSUs' funding is
raised through fees, which often allow for bonuses and staff
welfare on top of formal salaries. This gave a strong incentive for
PSUs and their supervisory departments to distort the market in
which PSUs operate. With a widening gap in income, reliance on user
charges for financing service delivery is becoming a barrier to
access for the poor. In addition, greater autonomy in revenue
generation often was not accompanied by better performance
management and stronger financial accountability.
"PSU reform is as important as SOE (state-owned enterprise)
reform, but is much more complex. This is largely because of the
high degree of diversity and complexity of PSUs. It is therefore
crucial for any major reform action to be designed with full
consideration of sector- and region-specific circumstances," said
Bert Hofman, the bank's lead economist for China. He added: "In the
meantime, however, the complexity of reform also calls for clearly
defined objectives and an overall strategy to safeguard it from
losing direction mid-stream. And there exists a range of
cross-cutting issues that must be addressed in the reform of any
sector and region."
As part of its recommendation of a reform strategy for the
government, the report calls for a reconsideration of the
government's role in service delivery in view of market failure and
a divestment from commercial production of private goods and
services.
"Government intervention in service delivery should be justified
by not only public interest, but also market failure, and due
consideration should be given to the potential cost of government
failure," said Chunlin Zhang, the World Bank's senior enterprise
restructuring specialist and lead author of the report. "Therefore,
a redefinition of the role of the government is in essence about
the right balance between market failure and government failure in
the delivery of a particular service in a particular time and a
particular place."
The report made a range of recommendations involving both
financing and incentives issues. On the financing side, it urges
the government to revamp public finance for public services by
strengthening budget institutions and realigning intergovernmental
fiscal relations. In the light of international experiences, the
report provides a list of seven organizational forms that China
could consider adopting for its service providers, including
non-profit organizations and private firms.
A legal and regulatory framework should be created to allow for
more non-state participation in public service delivery. Within the
public sector, the report proposes that two separate legal
categories be created for existing PSUs to allow for more
flexibility in governance structure, namely, delegated and devolved
PSUs. Accountability should be strengthened through better
performance management, further improvements to the personnel and
compensation system in the public sector, as well as the
empowerment of clients, according to the report. To organize the
reform effectively, the creation of a central, multi-ministerial
task force to guide and monitor reforms might well be desirable,
the report says.
The report believes that it is probably inevitable that some
reform measures that are necessary for improvement of public
services might negatively affect job, salary, bonus, and pension
benefits of some PSU employees, at least in the short term.
However, the report adds that based on the nature of services
provided by PSUs and the characteristics of its labor force, it is
conceivable that the government would not be faced with mass
layoffs at the aggregate level or employment pressures in certain
regions, as was the case in SOE reforms.
(China.org.cn June 22, 2005)