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
. 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
. 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

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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