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Government's response to financial crisis will change the role of the public sector around the world

Reexamination of operational models

To improve the public sector’s effectiveness, operational models will be revisited: Solutions may lie in consolidation, shared services, cooperation among public services, integration of services across levels of governments, and integration of service provision models.

The relationship between public and private sector operations may also change as a result of the crisis. Public resources that currently return little value, such as abandoned land and buildings, may blossom into productivity under the contractual stewardship of private entrepreneurs. At the same time, an expanded public sector may be more attractive to investors that look for publicly financed private ventures, and better able to negotiate financing terms in some countries. Finally, Governments will find them more willing to consider not only cost concessions but more contract models that peg rewards on the quality of service delivery.

Challenge to attract talent

Another example of the do-more-with-less challenge that characterizes the global financial crisis will be to attract talent to work for the public sector because it will offer more challenges with fewer guaranteed comforts. This will make the public service recruitment a transformative opportunity.

“Governments across the globe may emerge from this shift with a new generation of public servants at the helm, people who come to the profession with plans and expectations that differ from those of their predecessors,” said Pellegrino. “Their approach to playing a part in government will change. Instead of looking for the stability and long term benefits that were appealing to the post-war baby boomer generation, they will be entering the government with the desire to make an impact on things that matter to them, such as energy issues.”

More infrastructure projects

Infrastructure will be the great benefactor of the financial crisis as the asset class is the center of attention of the financial industry. In fact, the crisis will have an immediate impact on infrastructure. With securitization constrained, mono lines out of play, and private equity showing poor results, global investors will increase focus on infrastructure, which is relatively resilient because of its risk profile. These projects are large, tangible, stable and predictable at the long term, and revenues from infrastructure projects are fairly inelastic to the wider conditions in an economy as the demand generally remains strong.

“Further infusion of government investment in economic infrastructure is a common response in industrial nations, making manufacturing, telecommunications, transportation, and resources sectors even more appealing in a recovery period, said Pellegrino.

To keep pace with growth, governments may find that innovative financing strategies, such as public-private partnerships (PPPs), provide a useful alternative. “However,” warns Pellegrino, “infrastructure projects should not be just launched to drive job creation but to invest in economic and sustainable growth.”

Who will pay for publicly financed projects?

The financial crisis will also have a negative impact for some projects, especially long-term aspirational goals such as corporate responsibility and environmental protection. “Projects that don’t offer economic value will be the ones paying for this,” noted Pellegrino, who thinks that long-term effects of the financial crisis could be positive as Governments and policy makers rebuild their way of operation and don’t focus only on the short term. “Governments around the world can find the seeds of long-term advantage in the decisions they make now,” concluded Pellegrino.


(This is press release of Deloitte-dated Dec 3, 2008)

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