The government role in the market economy

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Latvia is a country that is moving from the Soviet style of socialism to a democratic government and a market-based economy. The country ratified its participation in the United Nations Convention on the Rights of the Child in 1992. Activities connected to the ratification by the Latvian legislature has created an impressive database on current conditions for Latvian children. The change from socialism has been difficult when measured by the availability of services provided to children in need. The following information is taken from the 1998 Alternative Report to the United Nations by the Latvian Save The Children organization.

The number of families below the minimum subsistence level has risen to 85% in 1996 compared to 15% in 1991. This decrease in family incomes has affected the quality of family life in Latvia. In 1996, only 20% of the children are in good health. Such diseases as tuberculosis, rheumatism, diphtheria and tick encephalitis have spread rapidly. Juvenile crime, alcoholism, narcotic drug addiction and prostitution have risen sharply. As a result, more and more children are abandoned, physically or sexually abused, become pregnant or homeless.

Services to support children who are at risk are virtually non-existent. The government of Latvia is under tremendous pressure to balance its budget. It is a struggle to maintain existing human services and it is impossible for the government to fund new services. The existence of a sizable population of abandoned, abused, handicapped and homeless children is only now beginning to be officially recognized.

The network of social services that Canadians take for granted does simply not yet exist in Latvia. The government is working to develop these services, but the pressures of the national budget and difficult economic situation have brought any progress to a standstill.

The government budget is made from private sector taxes and it is diverted to municipal governments and then channeled to social services. Every year amount which is channeled to the social services is different, because of pressures of the national budget and difficult economic situation. These social services are merit good when society members are refusing to have some amount of their own money for giving it to preschool and other Latvia’s children. This leads to situation where people who are using private day care services instead of municipal are paying again.

Also current situation in Latvia is that you have to wait on a line for a years to get officially in a municipal day care center, at the same time municipal government are abolishing existing day care services because of money shortage. This leads to situation where people have to use their private money and they are having two choices whether send their children to private day care centers or have a baby-sitter to look after them. Practically it means that our social service system is not able to maintain existing amount of children who are in need for day care.

Customers of day care services are parents that have preschool age children and that want to work in daytime and therefore or for other reasons want to leave their children in a professional care.

Output mix of day care services is:

  • education and safety of the children;
  • less bother and “peace” for their parents.

As these social services are having technological externality effect and neighbourhood effect government role is make people understand that solving day care services problem they will have better environment and more educated people around. It also affects crime because most criminals are those people who were left unattended while they were kids. This also means that community has to be more informed about current situation in the country and given more information about problem in day care services.

Also current government problem in this situation is whether they have to decide to make these services into completely private social services or completely public social services or maybe find something between them - make a mix of both. This means that there is a market for each of production/distribution sectors.

Sector one - public production/public distribution will be forced to use those high risk families which should be given with gift voucher which can be spend only for day care services.

Sector two - public production/private distribution is sector where market is families with an income more than minimum, when they can afford to make choice themselves for taking their children into public day care services

Sector three - private production/public distribution is sector where private day care service companies will provide day care services and government will enforce to use them through its channels of distribution.

Sector four - private production/private distribution is sector which is most common for high income people who can afford to use private day care services with higher quality.

Private sector in production can provide wider range of options (more specified preschool education including different sports, language and arts). Competition within private sector can ensure higher quality of this service and faster response to demand change. At the same time government should be controlling day care services as proper children care is very important for society and the future of nation.

We can see that all of these sectors have its specific market and government goal is to determine through the analysis which of this market should be most supported and what kind of support programs should be used.

Some solutions which government can be using for proper children care are given below:

regulation - some kind of legislative regulations which prescribe attend day care services for a certain age children. Here we can not forget cost factor which is very important. To implement this regulations government will have to have an institution which has to ensure correct implementation.

standards - setting up different kind of social standards, such as income level at which one should be provided by a certain amount of a gift voucher which can be used for day care services. This has to be integrated with an analysis of a regional day care services infrastructure imperfection.

compensate those families which are using private day care services instead of public day care services as they want to have a greater quality. Municipalities should provide subsidies for children from high-risk families to attend those day care services free of charge or for partly payment.

voluntary action

direct - when someone understands that he can help society with helping and educating these children at day care service institutions

indirect - this can also be brought under section regulations where we mean by making appropriate legislation where one will be completely tax deductible for amount of money which one donate to a day care service field. We want to call this as voluntary action instead of tax or regulation action because those companies have to make their own voluntary decision whether they will be using tax deduct or appropriate law.

And finally I have to mention that solving problem with day care services you have to always look in overall situation in the country. Because you have to measure other social and financial factors of the country. Governments role is make decisions considering overall situation and find the most suitable decisions.