The government role in the market economy



              Course THE GOVERNMENT ROLE IN THE MARKET ECONOMY

  Essay The Government Role in The Day Care Services Development in Latvia.



                                                professor Andrejs Skaburskis


                                             Laima Lоpace, 3SEA2, BizVB96018
                                            Evita Noriete, 3SEA2, BizVB96410
                                              Ildze Voita, 3TVV2, BizVB96074
                                   Rodюers Jвnis Grigulis, 3SEA1, BizVB96062



                                 Riga, 1999
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:
     1. 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.
     2. 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.
     3. 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.
     4. 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.


	

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