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Decentralization and outsourcing municipal services: the effect on efficiency and quality of life

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Isabel-María García-Sánchez, José-Manuel Prado-Lorenzo and Beatriz Square-Ballesteros. Professors at the University of Salamanca

Throughout history, the concern of governments has been focused on how to provide reasonable public services to all citizens at an acceptable cost. The Public Sector arises as a mechanism to combat the lack of interest from the private sector to establish business projects related to the provision of universal services at social prices. However, excessive socialization could highlight the problems of efficiency and effectiveness of large bureaucracies.

The theory of NPM (New Public Management) was conceived as an attempt to avoid such problems, through modernization and combining the strengths of the public sector and the private sector for the more effective and efficient provision of services. Among the major reforms that have been undertaken based on its proposals are functional decentralization processes and outsourcing. Others also arise halfway between the functional decentralization and outsourcing, called joint ventures.

Since the late 90s, the increase in the number of entities involved in the provision of municipal services in Spain has been spectacular, both as decentralized entities and through outsourcing. Although it is conceivable that the use of the processes of functional decentralization and outsourcing should respond to serving citizens better, it cannot be forgotten that some of the established authorities are much more impervious to supervision by the organs of public control. This facilitates the creation of "design" jobs and the generation of resources through borrowing for purposes other than strict delivery of efficient service.

These suspicions, lying deep in the minds of many people for some time, seem to be confirmed especially since the new government, in its fight against the deficit, highlighted the apparent so-called "oversizing" of the Spanish public and foundational business and the need for simplification.

Quality of life should be what drives government

In line with the proposed reforms, we need to consider questions associated with the evolution of the processes of functional decentralization and outsourcing and how its creation affects citizens and management of local governments. The search for answers to these and other issues is key to finding a reasonable explanation to the process and, to some extent, some of the situations in which our country currently finds itself.

The quality of life of citizens should be the driving force behind the actions of our leaders, as well as the creation of decentralized or outsourced entities. In addition, since efficiency is one of the reasons for involving the private sector in the provision of public services, it seems appropriate to assess to what extent efficiency has been improved by the creation of these entities.

With these objectives, we have conducted an analysis of a sample of 153 Spanish municipalities, including all municipalities with over 50,000 inhabitants and all the provincial capitals, although its population was lower for the twelve years between 1999 and 2010.

Overall, the results show a positive impact of the use of functional decentralization in the quality of life of citizens, an effect that does not occur with the use of outsourcing or joint ventures. In terms of efficiency, it appears that the incorporation of the private sector in the provision of public services does not improve efficiency in the management of local governments.

Decentralization and outsourcing

The modernization of public administration began to develop in 1980 and involves the introduction of principles of economy, efficiency, effectiveness and excellence in the implementation of public policies, implementation of management proposals such as privatisation, decentralization and outsourcing and the use of control mechanisms for the delegation of responsibilities.

Functional decentralization processes consist of creating smaller, more flexible agencies in which business culture predominates, thus avoiding the rigidities typical of public administration systems. Subsidiaries are able to deliver services faster and are more responsive to the needs of the citizens. However, this system has also been criticized, since coordination problems easily appear, with duplication and overlap, if there is no effective control system.

Externalising services, outsourcing or contracting out, is a process by which the government transferred the delivery of public services to the private sector by signing contracts with private companies. This process is based on two basic ideas: the provision of services is left to specialized providers, and this in turn, implies a transfer of knowledge between suppliers and customers, both contributing to improve the quality of services.

However, the use of outsourcing entails certain problems. On one hand, citizens may perceive the private sector provider of services as a barrier between them and their governments. Furthermore, it facilitates the emergence of corruption and favouritism on the part of politicians as to the allocation of provision contracts. Likewise, government is emptied of content and therefore limited to the mere selection of suppliers.

In Spain despite all the criticism, there have been significant advances in the processes of functional decentralization and outsourcing, although the arrival of the reforms proposed by the NPM was later than in other developed countries.

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