Marketization: A Development Concept

Marketization, as a management / organizational concept is the adoption of market principles to public management. In the context of service delivery, Marketization means letting the service be delivered by competing market players for profit / incentive providing consumers a range of choices on the service they need. This will require the government to let private providers to compete with the traditional government providers or even better, let the private providers compete while the governments take on the role of facilitators enabling the market to function properly.

A major focus of marketization is the concept of competition which is necessary for the market to function well. Moreover, competitive environments provide innovation and continuous improvement, maximizing benefits while preventing price-gouging. With this, many consider marketization of public services as a potential solution for some of the weaknesses and problems in the traditional bureaucracy.

One of the ways of marketizing public services is contracting or more popularly known today as outsourcing. It can be observed that today’s governments are increasingly interested to outsource their services to non-governmental entities. This is not so surprising because outsourcing has had significant positive results to some of the public services. The benefits from such schemes include cost reduction, greater flexibility, access to skills, and innovation.

Marketization Models in Germany

Competitive powers have increased in the public sector of Germany over the last decade. This has been caused by the worldwide mainstream of neoliberal thinking and NPM. Two major forms of competition can be observed – non-market/quasi-market competition and the market competition. Related activities which fall under these two types of competition follow a number of trends.

One trend is the autonomization and corporatization of public entities, particularly at the local level. Over the past 20 years, more governmental units such as schools, hospitals, cultural organization, infrastructure, water or energy, maintenance and cleaning have moved from being an integral part of the Government toward a more autonomous status. The objective was to gain separate legal status and be able to enter the market.

Another trend is the benchmarking or performance measurement activity in the German public sector, predominantly at the local level. The aim was to establish a set of performance indicators that are related to the different products / services of the local bureaucracies. Such indicators are important such that in the absence of market competition, local governments compete on the basis of the set standard of performance and they are evaluated on the basis of these indicators. It is this kind of "competition by benchmarking" when public sector reformers in Germany speak about competition.

The introduction of internal markets into public sector organizations is another trend that has emerged in Germany. This model proposes a service level agreement between internal service units within a government agency. It is presumed that both the provider and the providee will negotiate on the terms and fees in the delivery of a service thereby simulating a market within the organization. This is what is referred to as "internal market."

Development Concept: Marketization of Public Services in New York

New York was one of US cities that first realized the benefits of sourcing out private providers to perform jobs that were once exclusive to the state government. The 1995 Governor Geroge E. Pataki remarked that "competitive bidding between the public and the private sector can lower costs and provide more efficient deliver of services."

Indeed, New York experienced efficiency gains since marketizing some of its public services. For example, it spends about 3 million dollars annually on highway maintenance, bus transit subsidies, mental health facilities, motor vehicles record keeping, human resource management, prisons, and welfare and Medicaid administration. In just these areas, about 5 to 50 percent efficiency is estimated to be achieved. Such gains can be translated into hundreds of millions of dollars every year and it can be larger when other areas are considered for outsourcing.

Since 1995, the state has contracted out services in areas including janitorial and custodial work, facility design, warehousing, courier and package delivery, sate bakeries and warehouses, and management of park concession stands at state parks. One of the felt benefits that the state government had from marketization is that it is now operating with 20,000 less payroll employees than a decade ago.

Marketization of Water in Metro Manila

Marketization of water was done through competitive bidding to private providers in 1997. Two concessionaires won the bid and were awarded the contract. Much changed after two private concessionaires took over MWSS dividing Metropolitan Manila into two water zones. Although there are disputes regarding exact figure, the two companies were able to connect about 2 million more people to the water network.

However, six years after the private firms took over, the promised benefits seem to be fading. Many of the old problems – debts, underfunding, broken pipes and water theft – have resurfaced.

Development Concept: North America's Instructional Commodities

In North America many universities have adopted entrepreneurial practices. They act not only as business partners, but also as businesses themselves. They developed profit-making activities through university resources, faculty and student labor. For instance, they conducted paid research, primarily commoditizing university research resources. The marketization model was also used to sell courses and instructional materials to potentially anyone in the world. This was done by developing online courses and internet-based learning modules.