INTRODUCTION

Government operations are those activities involved in the running of a state for the purpose of producing
value for the citizens. Public administration is a vehicle for expressing the values and preferences of
citizens, communities and society as a whole. Some of these values and preferences are constant, others
change as societies evolve. Periodically, one set of values comes to the fore, and its energy transforms the
role of government and the practice of public administration. Future trends in public administration
highlight the importance of good governance and recognise the interconnected roles of the private sector,
the public sector and civil society institutions. Good governance requires good government, i.e. an
effective public service and effective public service institutions, which are more productive, more
transparent and more responsive. The traditional descriptive approach to the study of public
administration was confronted with public policy processes that are more open and participative,
involving many individuals, groups and institutions both inside and outside government. The changing
environment caused a shift towards a new value-orientated public management approach with the ability
to provide efficient and effective services to meet the changing needs of society. This chapter analyses the
nature of the economic goods which are typically provided by the public sector and provides an economic
argument for the existence of a public sector for resource allocation purposes in a market-orientated
system. The analysis considers resource allocation in a society characterised by a preference for the
private-sector approach. More specifically, it emphasises the allocation behaviour of a public-sector
operating in a mixed, though market-orientated, economic system.

It defines the process for making official government decisions. It usually comprizes the governmental
legal and economic system, social and cultural system, and other state and government specific systems.

THE IDEOLOGICAL BASIS OF THE STATE

Gildenhuys (1988:4) indicates that the role of the state is based on four ideologies, namely the laissez-
faire capitalism, socialism, the notion of the social welfare state and the notion of an economic welfare
state. In terms of the laissez-faire theory, the primary goal of the state is to provide an enabling
environment for free competition among the citizens. The government protects its citizens by regulating
through enforcement of contracts by the courts of law, the protection of the individuals and their property,
and the defence of the national community from aggression from across its borders. Within this
framework, the government promotes free and unregulated competition (Gildenhuys, 1997:6). Socialism
differs from the laissez-faire capitalism in that it does not acknowledge private ownership and free
enterprise. Socialism makes provision for the redistribution of income and social benefits such as free
health services, social grants, pensions and free education. The role of the state is the control of markets,
redistribution of income and provision of welfare services for all citizens (Gildenhuys, 1988:8). The role
of the social welfare state is to ensure minimum standards for a good life to all its citizens through
providing education, pensions, medical care, housing, and protection against loss of employment or
business. The social welfare state creates an enabling environment to ensure its citizens have equal
opportunities for a good life (Gildenhuys, 1988:9). The economic welfare state emphasises the economic
welfare of the individual and is based on democratic values and free enterprise, with minimum
government intervention in the activities of the individual. The aim of the economic welfare state is to
create an environment in which an individual is free to develop his/her personal economic welfare and
this will enable the individual to look after his/her personal welfare. The government regulates the
relationships between individuals through an independent judicial system based on common law
principles (Gildenhuys, 1997:16). The political ideology will always have a decisive influence on the
financial policy of the government in its strive to achieve specific objectives and results. This influence
might vary from minimum government with no interference in the lives of citizens to total government
with a situation where the state denies the opportunity for private ownership and free enterprise. Due to
imbalances in society neither one of these extremes seems feasible for governments in modern society.
There is a continuous need for equal opportunities for a good life and also the need to create an
environment in which an individual is free to develop his/her personal economic welfare rather: as this
will enable the individual to look after his/her own personal welfare, according to Herber (1971:4).

In terms of public financial performance management, the implications of these ideologies are significant
with specific reference to the variation in the impact or results derived from government actions. The
social welfare ideology to ensure a good life by providing basic services is not necessarily constructive
and developmental in nature; however, it places a very heavy burden on government’s revenue, namely,
the taxes earned from the citizens in a position to contribute. This situation can convert goods and
services into deliverables, but the long-term result or impact might be in question. The economic welfare
ideology to create an environment in which an individual is free to develop, providing enabling
opportunities for growth and still delivering services through public administration interventions is
focused on growth results and long-term impact for quality of life. This situation seems to be conducive
for a performance platform and the application of good governance, stewardship and finally, public
financial performance management. The next part of this chapter will expands on the role and functions
of the state (Minnaar, 2010:15-16).

THE ECONOMIC PROBLEM OF SCARCITY

The primary goal of the state is to promote the general welfare of society. Aristotle (in Strong, 1963:17)
argues that the state exists not only to make life possible, but also to make life good. The state's primary
role is not only a political one, it also has moral obligations towards its citizens by providing services in
making life good (Chambliss, 1954:197). Minnaar (2010:16) argues that the basic economic problem of
scarcity provides a logical departure point for the analysis of the role and functions of government. Due to
unlimited human needs and wants, and limited resources to fulfil these wants, basic conditions for optimal
market allocation are not fully met and resources available to any society are limited in their ability to
produce economic goods by both quantitative and qualitative constraints. The limited supply of resources
available to a society leads to the allocation function or problem of economics. The unlimited scope of
aggregate human wants, alongside the limited resources which produce the economic goods (including
intangible services) capable of satisfying these wants, requires the allocation of scarce resources among
alternative uses. An infinite or unlimited quantity of economic goods cannot be produced. When some
goods are produced with the scarce resources, the opportunities to produce other goods are foregone.
Thus, an economic system must exist to determine the pattern of Basic functions of an economic system
Two primary institutions exist for the purpose of performing the basic functions of an economic system.
The private sector or market institutions within the domain of business management with the factor of
profit as the overriding criterion are engaged in business allocation activities of demand and supply and
the price mechanism. Public-sector or government allocation is accomplished through the revenue and
expenditure activities of governmental budgeting (Swilling, 1999:21). However, no economy in the world
follows a purely market or a purely governmental approach in the allocation functions, instead,
Samuelson (1954:387) contends that each economy in the world is ‘mixed’ to one degree or another.
Accordingly, a given national economy may typically be referred to as ‘capitalist’ or ‘socialist’ depending
on the degree to which it is focused on the market or governmental means of allocation. This analysis will
emphasise the allocation behaviour of a society characterised by a preference for a market approach
operating in a mixed economic system.

THE EUROPEAN ROOTS OF MODERN PUBLIC-SECTOR ECONOMICS

Adam Smith’s The wealth of nations, published in 1776, is generally considered to mark the beginning of
modern economic theory. Smith described the appropriate economic role of the public sector and
enumerated four categories of governmental allocation activity. The national defence function;
establishing an administration of justice which provides for law and order in society; the duty of
establishing public institutions and necessary public works that private firms could not profitably supply;
and the duty of meeting expenses necessary for support of the sovereign (Ranney, 1975:505). Throughout
the 1800s and early 1900s, a number of European economists, following Smith, tried to develop a
coherent economic theory of the public sector. These exponents were never entirely successful, but their
research led to a number of the principles that underpin both the modern mainstream theory of the public
sector and Wicksell’s theories as the basis for Buchanan’s theory of public choice (Tresch, 2008:1)
Ranney (1975:506) contends that though Smith often has been described as a bold advocate of minimal
governmental activity, his writings fail to indicate significant opposition to a public sector for allocative
purposes in society. In contrast, Herber (1971: 22) argues that the four functions of government would
require a level of public-sector resource allocation substantially greater than a laissez-faire economic
system. The most relevant of Smith's four functions of government are the first and the third, namely, the
national defence and public works functions. The second function, that of preserving law and order in
society, and the fourth, that of maintaining the sovereign or executive level of government, are not
controversial functions of government and relate to the existence of a public sector for resource allocation
purposes in a market-oriented economy.

THE NEW ROLE OF THE STATE

As analysed in Chapter, the debate about public administration reform has been highlighted beyond the
new public managerialism, with a view of the government as one of many social actors whose influence
determines the means and ends of public policies. Traditionally, government has been seen as the primary
agent in serving the public good and defining the collective interest. According to this view, governments
set the agenda for change, propose new laws and enforce existing ones. Governments are the providers of
public services, the problem-solvers, the arbiters and the decision-makers. As a result, many public-sector
reforms have focused on the direct service delivery role of government to citizens. However, using this
basis for reforms will be insufficient to prepare governments for the challenges of the 21st century (Kettl,
2002:43). The emergence of a new thinking about public management, major world trends such as
globalisation, the collapse of the communist states and the subsequent end of the Cold War, as well as the
enormous increases of inequities within and between developing and developed countries have all
contributed to the debate of the changing role of government (Swilling, 1999:21). The classic functions of
government.

ensure competition and maintain safety and soundness of financial systems (Stiglitz, 1998:8). The World
Bank (2003:9) has identified four principles to reflect the overall range of the role of government for
creating an enabling environment for corporate social responsibility as follows:

1) Mandating - provisioning of formal command and control legislation, regulation and providing legal
and fiscal penalties.

2) Facilitating - government provides a supportive environment by unifying different spheres of

4) Endorsing - endorsement by means of political support, public procurement and providing publicity
and buy-in.