Introduction

In a world of increasing interdependency and liberalisation of markets there is naturally a growing concern about the competitiveness and performance of enterprises and national economies. The expansion of the public sector and in particular public services is a prominent candidate among the many possible reasons why competitiveness may deteriorate. The dominant view is that the evolutionary process from the ‘night watchman’ to the welfare state has gone too far. For example, it is argued:

that too many public services are provided due to the lack of costconsciousness among consumers;

that the vested interests of public bureaucracies and the lack of economic incentives for public employees (who do not have to fear unemployment) impede productivity growth;

that public services displace private services;

that the costs of financing public services crowd out private investment.

This list is certainly not exhaustive, yet it leads to the crucial question:

Are states with larger public sectors and a high level of public services at a competitive disadvantage? A survey of this relatively neglected theme in comparative research seems to be extremely interesting, especially in view of the large public service sector in European Community states. Given the breadth and complexity of the issue, our aim in this chapter can only be to present an overview of principal issues and to survey available data and evidence on the role of public services in competitiveness, identifying gaps in existing knowledge and research needs.