Constitutional Boundaries of Transfer of Public Functions to Private Sector in Estonia

• Author: Nele Parrest
• Position: Magister iuris, Deputy Chancellor of Justice
• Pages: 44-55

The possibility and necessity of transferring public functions to the private sector has been acknowledged both in Estonian and international legal literature and practice ² for quite a few years already. The concept of a slim state is mentioned, in which the public authority retains only certain functions as directly executable by it, as well as the concept of an enabling state (Gewährleistungsstaat), i.e., the state relinquishes in one way or another or to a certain degree its functions, enabling the private sector to perform them within a nationally governed framework, while the state itself only assumes a so-called enabling function. ³

The other terms used besides 'transfer of public functions' often include terms such as 'grant of authority to perform a public duty (Administrative Co-operation Act ⁴ (ACA)), 'involvement of the private sector' (judicial practice ⁵ ) and 'privatisation'. The meaning and scope that is attributed to them often varies greatly depending on the form, legal basis, scope, legal effects, etc. of the transfer of the function to the private sector. Since there is no clear and unambiguous approach to distinguishing between these notions either in Estonian or international literature, the following paper will use the terms 'transfer', 'involvement' and 'privatisation' as synonymous in their widest sense, i.e., as encompassing a transfer of a public function to the private sector in any manner, regardless of the aspects described above.

In brief, the main objective of the transfer of public functions to the private sector may be considered to be the hope of gaining value for money - a less costly, higher quality public service. According to the opinions prevailing in literature, the private sector is reportedly more efficient; also, the private sector is said to possess knowledge and know-how that the public sector lacks. One of the reasons pointed out is naturally the scarcity of public resources, especially staff. Yet there is consensus that the involvement of the private sector must not damage the protection of the rights or public interests of people in whose interests the functions are performed. The possibility of involving the private sector must not serve as a cause or motive for the public sector to be inefficient. ⁶

Although the decision to involve the private sector in the execution of a function is, above all, political, there is certainly a clear constitutional dimension to it. ⁷ We may ask, on the one hand, if an obligation to transfer a public function to the private sector could be derived from the Constitution (e.g., based on the principle of subsidiarity or efficient use of means of the public authority ⁸ ). This aspect is obviously not topical in practice; at least there is no information that the private sector has demanded that or has considered demanding thereof in Estonia. On the other hand, the question is where the boundaries set out in the Constitution lie, what, how and under what conditions the public authority may transfer to the private sector. These are the questions that several officials must answer in their everyday work. However, by merely reading the text, the Constitution as an abstract legislative act does not provide simple 'may / may not transfer' answers.

In practice, the notion that has come to denote non-transferable public functions is 'the core function of the state authority'. ⁹ Yet the fact that a function is covered or not covered by the notion 'core function of the authority of the state' or 'monopoly of the authority of the state' ¹⁰ does not generally answer the question whether involvement of the private sector in performing the particular function is permissible. In other words, labelling a certain function as a core function does not by any means or fully preclude the possibility of involving the private sector - the involvement of the private sector is, in the light of the Constitution, a priori, precluded, only when and to the extent of the so-called core of a core function. ¹¹ The same applies the other way round, i.e., the fact that a function is not labelled as a core function does not, in essence, mean that the involvement of the private sector in any form or manner is certainly and without limitations permissible in the light of the Constitution.

Two levels must be distinguished when analysing the question where the constitutional boundaries of transferring the public functions to the private sector run:

- the level of a public function; and

- the level of the form of transferring a public function to the private sector.

These levels are intertwined and a constitutional solution upon determining the transfer of public functions can be found only by analysing these two in conjunction with each other. Thus, for example, the criteria described below and arising from the level of the public function take on a different meaning in various forms of involvement. If, on the level of the public function, an understanding is reached that the involvement of the private sector is completely ruled out, there is naturally no point in analysing the form of the transfer.

1. Level of public function

The state is traditionally broken down into three branches of power: the legislative, the executive and the judicial power. Although in practice it is said that the private sector is, above all, involved in the exercise of the executive power (issuing of activity licences, payment of benefits, provision of so-called genuine public services ¹² ), in reality, none of these branches have escaped the discussion of the transfer of the public functions to the private sector.

Even if considering the state monopoly of legislation and administration of justice as self-evident, it is possible to, for example, ask whether a summons or a ruling may be served to the defendant by AS Eesti Post as a private entrepreneur (although the state holds 100% of its shares). How can the monopoly of administration of justice by the state be combined with arbitration proceedings ¹³ , provision of state legal aid by lawyers in judicial proceedings or execution of judgments by bailiffs who stand on the borderline between private and public authority? ¹⁴ Should publication of legislation in print and/or online be completely in the hands of the state? ¹⁵ We could carry on with analogous confusing, but in practice topical, questions. That is why a discussion about the constitutionality of the transfer of public functions to the private sector has also been referred to as phantom discussion in literature. ¹⁶

A big contribution to the complexity of the discussion of the constitutional boundaries of transferring public functions to the private sector is also presented by the question of what actually is a public function (for example, whether the assignment of domain names or burial of the dead who do not have relatives serve as such), as well as the confusion related to the term in distinguishing (or not distinguishing) between a particular public function and some area (cf. conducting tax proceedings and delivery of a notice of assessment). ¹⁷ A more detailed analysis of these issues unfortunately exceeds the limits of this paper. Below, we will proceed, above all, from the narrow approach to the function of the state, i.e., denoting particular functions that are vested in the state in general understanding.

Based on the causes of the restrictions, the boundaries of the involvement of the private sector arising from the Constitution can be divided into three on the level of a public function: objective boundaries, subjective boundaries (as an individual right) and their connection. Such a division is naturally only conventional and serves the purpose of a better understanding. These three also partly overlap (e.g., the protection of fundamental rights and the principle of a state based on the rule of law).

2. Objective boundaries

The objective boundaries of the involvement of the private sector in performing public functions encompass the principle of a state based on the rule of law and democracy and a criterion that can be characterised by 'the ability of a state to act as a state'.

2.1. Principles of state based on the rule of law and democracy

Based on the Constitution ¹⁸ (§§ 59 ff., 102 ff., 87 (6), 94 (2), § 146 ff.) it is unambiguously clear that the adoption of legal provisions by a parliament elected in free, general, uniform and secret elections (and by the executive power as delegated by the parliament ¹⁹ ) as well as administration of justice by independent courts in accordance with law and the Constitution (in its narrow sense) ²⁰ are areas in which the sole authority of state power must be preserved. The sole power of the state in these areas can be derived from the principles of democracy ²¹ and a state based on the rule of law (§§ 1 (1), 10 of the Constitution).

Thus, the principle of a state based on the rule of law presumes, for example, the recognition of the existence of fundamental rights (see Part 3 of the paper) and that the state ensures their protection through the activities of independent courts. A part of the principle of democracy is democratic legitimation, i.e., the authorities exercising state power must be connected to the people. In this, democracy presumes that the more important the decision is, the stronger and the more direct must be the legitimation of the authority making the decision. ²² Hence, the principle of the parliament reservation or the principle of importance arising from § 3 (1) of the Constitution obliges the...