Public Services: Background

Industry Composition:

The public services industry is composed of services that have been deemed necessary, usually by social consensus, to all people and are often provided by the government. This includes public education services, environmental services, government and public administration, law enforcement and security, public transportation, non-profit organizations, and non-energy utilities. These programs or agencies can be operated at the federal, state, or local level, and are usually funded through the collection of taxes or via donations from interested parties.

Utilities are a little different than other services in this industry. Utilities include water supply systems and wastewater treatment; however, electric and heat related utilities are included as part of the energy industry. What makes utilities different from other segments of this industry is that they are privately owned. Since the services that utility establishments provide are vital for daily life, they are considered public goods and are under heavy governmental regulation. In urban areas, there are generally fewer utility companies, since the economies of scale created by the larger population make it so that a couple large companies can better serve the public than many smaller companies.

For globalEDGE’s purpose, anything to do with energy, including electricity and heat, is classified under the Energy Industry.

Leaders:

It is hard to determine who qualifies as the leader of the industry, since government and non-profit type organizations operate, and report results, in a different manner than a normal business. Government regulated companies are not out to make profits; all programs are funded by the public through taxes or through donations. However, in terms of which agencies receive the most funding, the Departments of Defense and Treasury are at the top in the United States, with similar funding patterns found in the rest of the developed world. They are also near the top in terms of workforce, though the program with the most employees is the U.S. Postal Service, although that could change in the near future with budget cutbacks. Some major non-profit organizations include YMCA, The Bill and Melinda Gates Foundation, and Goodwill. Other large non-profits include the Switzerland based Red Cross and Amnesty International. The Wellcome Trust, another non-profit organization, is based in the United Kingdom.

Trends:

Recently the public services industry has shown some trends towards coordination, especially among government operations. Coordination refers to uniting separate government agencies so they work together instead of working out-of-sync and creating redundancies. For example, the Coast Guard, Border Patrol, Customs, and Immigration and Naturalization Service were coordinated to promote better homeland security.

Government outsourcing refers to the functions or services that are now being handled by private companies instead of a government agency. For example, garbage removal services in the United States are now provided by private companies. Since private companies are driven by the bottom line, they should perform the function more efficiently than a government agency, resulting in a lower total cost for the consumer.

As the privatization of public services is gaining popularity, more people are questioning the efficiency of free markets. People are concerned about the social tradeoffs of using the free market, that the externalities outweigh the benefits. Externalities include pollution, unemployment, uninsured people, and income differences.

A major problem of the United States government, as well as nearly all major governments – with the notable exception of some countries, such as China, Australia, and Hong Kong - is its continuing struggle with an increasing deficit. While state and local governments are required to keep balanced budgets, the federal government has no such legal limitations. Thus, it has created a huge deficit and as a result the government must cut back on unnecessary public services.

The problem with cutting back is that consumers’ demand for public services is increasing at a rapid rate. Populations all over the world are aging, which brings increased demand for governmental services – including healthcare, retirement packages, and welfare - which further strains their budget. Simply put, governments are being asked to do more, do it better, and do it on an equivalent or reduced budget.

In recent decades, attention has been focused on the education system due to the growing importance of producing a trained and educated workforce. Municipal governments provide operating services to residents, and education is the largest item of their budget, accounting for 45 percent of all local spending. Many institutions, including government, private industry, and research organizations, are involved in improving the quality of education. In an effort to promote innovation in public education, local governments have authorized the creation of public charter schools. Distance learning continues to expand as more postsecondary institutions use Internet-based technology to conduct lessons and coursework electronically.

Future Outlook:

Since public services cannot be measured based on profit, but only by how well its funds are used, it is difficult to predict any future success or failure of the industry. From a job outlook perspective, it appears that the industry has a poor future. For positive growth, the sector needs to reevaluate their purpose and current visions to determine new operating methods that will suffice the shifts of public demand. They will need to determine which services to offer and which to contract to private companies. Governments will also need to migrate from full to a self-service vision through technology such as the internet and mobile applications. Such uses can eliminate the high costs of labor and facilities, decreasing time spent on minimal demands, and focusing on higher-profiled macro projects. This also gives the public the opportunity to drive the sector’s direction and ease the burden on public officials. This will also allow the public services sector to focus on other manners, particularly the finances.

Since the government has no legal debt limit, finances have spun out of control as governments have to deal with ever-growing deficits. The government will need to find ways to reduce the debt so it can spend more on public services to meet the demand, enabling good growth and stabilizing the economy.

Sources:

Deloitte Industry Outlooks

KPMG Industries

PwC Industry Sectors

EY Industries

Glossary