Productivity and performance of public sector organisations

The growth, development and prosperity of nations and organisations depend fundamentally upon productivity. Little, however, is known about the productivity of about 70% of a developed economy’s activities. Attention is primarily focused upon the growth of productivity of the manufacturing sector of an economy. In this post industrial age, however, the services sector, including public services, usually account for about three-quarters of Gross Domestic Product (GDP). Within firms in the manufacturing sector central services contribute much to value added but little is known about the productivity of these central services. Despite its importance our knowledge about measures of productivity in the various sectors of an economy is very thin. Equally we know little about the linkages between productivity and growth. Of the services sector of developed economies the public sector is by far the dominant element. In 1995/ 96 public expenditure in the UK was 43.4% of GDP, at market prices. National income accountants measure the public sector in terms of its inputs. This has the consequence of assuming that productivity increases in the public sector are zero and produces a “relative price effect” in the national income accounts which in turn is reflected in public expenditure rising as a share of GDP. The nature of this relative price effect which follows from the assumption of a productivity differential between the public and private sectors is explored in this paper. Is the productivity of the public sector necessarily less than that of the manufacturing sector? To answer this question it is necessary to have reliable measures of productivity or value added that will enable comparisons to be made. Such measures are, however, not available. In recent years, however, attempts have been made to produce performance indicators for public sector activities. These developments within the framework of a “balanced scorecard” are examined. Attempts to compare the productivity of public sector utilities before and after privatisation have produced mixed results. Never-the-less the emergent view is that some productivity improvements have been recorded but these arise more as a result of increased competition rather than a change in ownership. Given the size of the public sectors of modern economies a small increase in public sector productivity will have a significant impact upon national economic growth and prosperity. [Text from the Introduction]