Who’s More Efficient? The Case for a Stronger Public Sector

Dr Adam North examines why public institutions can be more efficient than private companies.

Jun 12, 2025

In The Northern Rose’s podcast Ep.5, we discussed how the NHS has outsourced many essential services to private healthcare. Dr John Mulligan exposed the reality that public money is not well spent on private contractors, so why do government departments continue to waste resources outsourcing work that could be done more efficiently by public institutions?

A dominant narrative persists in economic and public discourse—that the private sector is inherently more efficient than the public sector. Supporters of this view often cite the profit motive, market competition, and innovation as the driving forces behind private sector efficiency. However, emerging evidence and real-world examples challenge this thinking, showing that public institutions—when properly structured—can deliver services as efficiently, and often more effectively, than private companies.

Defining Efficiency

Efficiency is commonly understood as the optimal use of resources to achieve desired outcomes. However, how efficiency is measured varies. The private sector often defines efficiency in terms of profitability and shareholder value, while the public sector prioritises benefits to the public through measuring positive social outcomes, accessibility, equity, and long-term sustainability. Which version of efficiency should we focus on?

Many private enterprises are highly effective at delivering profitability and shareholder value—particularly in the short term. However, this does not necessarily translate into efficiency when it comes to generating positive social outcomes, ensuring accessibility and equity, or promoting long-term environmental sustainability or responsibility. In fact, these broader goals often fall outside the primary objectives of profit-driven firms.

Public institutions are accountable to the public, which means their efficiency is measured by what best serves the public interest. When aligned with clear objectives and strong accountability structures, they can deliver services more efficiently than private entities.

Evidence of Public Sector Efficiency

1. Healthcare Systems

Countries with publicly run healthcare systems, such as the NHS or Canada’s Medicare system, consistently achieve better health outcomes at a lower cost per capita than the largely private healthcare system in the United States. According to the OECD, administrative costs in single-payer systems are substantially lower, and outcomes such as life expectancy and patient satisfaction are often higher.

Take this statement from a 2012 report by the Institute of Medicine on healthcare in the USA:

30 cents of every medical dollar goes to unnecessary health care, deceitful paperwork, fraud and other waste. The $750 billion in annual waste is more than the Pentagon budget and more than enough to care for every American who lacks health insurance…. Most of the waste came from unnecessary services ($210 billion annually), excess administrative costs ($190 billion) and inefficient delivery of care ($130 billion). Repeating colonoscopies, early imaging for back pain, and brain scans for patients who just recently had them or didn’t need them are examples of wasteful care.

There will inevitably be waste in the NHS, but don’t let anybody tell you that private healthcare has better healthcare outcomes.

2. Public Transportation

Publicly managed transit systems in cities like Tokyo, Zurich, and Singapore are renowned for their punctuality, cleanliness, and affordability. These systems are often subsidised to ensure wide access, and their integrated planning results in long-term operational efficiency that’s hard for profit-driven, fragmented private operators to replicate.

When transport is publicly owned, profits are the publics’ and can be reinvested in improving the infrastructure and quality of service. When it is privately owned, this doesn’t happen, just look at the state of our (mostly) privately owned public transport system.

3. Utilities and Infrastructure

In sectors like water and energy, publicly owned utilities in countries such as Germany and France have shown that public control leads to better long-term investments, reduced environmental impact, and fair pricing. Compare this to the UK and the difference is night and day. Public utilities should not be driven by quarterly earnings, but by the public good! They should be focusing on sustainability and service quality. Just look at the travesty that is Thames Water to be outraged by what privatisation has done to our utilities.

4. Emergency and Postal Services

Public services like firefighting, police, and national postal systems remain efficient due to centralised coordination, universal service mandates, and economies of scale.

Institutional Advantages of the Public Sector

Scale and Stability: Governments can plan long-term and allocate resources at a national or regional scale, avoiding the fragmentation that can plague private providers.
Equity and Access: Public entities are mandated to serve all citizens, not just profitable demographics, ensuring broader service reach.
Accountability: Public agencies are subject to scrutiny by elected officials, audit bodies, and the media, which can drive efficiency improvements through transparency.
Resilience: Public institutions often provide continuity during crises—such as the COVID-19 pandemic—when private firms may cut services or close operations due to financial risk.

5. Government Funding Often Leads to Innovation

It’s a common myth that the private sector is the primary engine of innovation. In fact, many foundational technologies—from GPS and the internet to touchscreen displays and voice recognition—were developed with public funding, often through military or research agencies.

As economist Mariana Mazzucato argues in The Entrepreneurial State: Debunking Public vs. Private Sector Myths, government has played a leading role in funding high-risk, long-horizon research that private investors avoid. Private companies often build upon these publicly funded breakthroughs, but rarely initiate them.

Countering the Criticism

Yes, the public sector can be slow-moving and bureaucratic. But inefficiencies are not inherent to public ownership. In many cases, they result from chronic underfunding, political interference, or lack of clear direction. These are managerial and structural failures, but they can be fixed.

The private sector faces its own inefficiencies: misaligned incentives, underinvestment in long-term needs, and neglect of unprofitable communities. The difference is that public inefficiencies are more visible—and therefore more often challenged—because they’re accountable to all of us.

Conclusion

Efficiency does not solely belong to the private sector. The public sector, when designed and managed effectively, can deliver high-quality services at scale, that are equitable, resilient, and socially valuable.

Rather than assuming an inherent inefficiency, the focus should shift toward creating and enabling environments for public institutions to thrive—through innovation, adequate funding, and accountability—just as we do with the private sector. This is essential to a fair and functioning society.