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The government role in the market economy

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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