Making public service markets work

By The Mandarin

Monday September 14, 2015

When asked how he would describe market stewardship, Tom Gash from the UK’s Institute For Government, told IPAA: “I like to think of it as all the things that government has to do to make sure that services are provided properly by private companies and charities… it’s a broad concept”.

Tom Gash
Tom Gash

“The reason it’s important is that often when government contracts out a service there can be a tendency, as has sometimes been the case in the UK, to concentrate on writing a contract and then thinking everything will be OK.

“Government has a role in making sure these markets work,” said Gash, adding that the importance becomes evident when we consider the case of service provision for more vulnerable people in society such as older people or those with a disability.

“It’s not enough to stand back and say ‘the market will take care of this’,” said Gash.

“You have to keep an eye on the larger providers … because if they suddenly fail you may have a whole load of people in a residential home who suddenly think ‘where will I be next week?'”

He says the market stewardship approach by government is an “ongoing active process and discipline”.

“One of the things we found in the UK and Australia is that you have to keep an eye on the larger providers, you need to make sure those providers are doing OK financially because if they suddenly fail you may have a whole load of people in a residential home for instance who suddenly think ‘what will happen to me, where will I be next week?’”

But while the stewardship concept prescribes an active role for government, it does not necessarily suggest heavy-handed intervention.

“Sometimes it can be light touch because things are working well,” said Gash, citing a UK example where some providers who offer both probation and employment services have begun bundling their services and co-locating them in the same offices in order to save money while providing the same — or better — standard of service.

He said market stewardship is about how governments interact with markets and how they engage private and voluntary sector organisations.

“Using private providers isn’t the same as privatisation — but some people, including politicians, are quite scared of anything involving terms like ‘market’.”

“For me, market stewardship comes in once you’ve decided to engage the private and voluntary sectors” said Gash. He referred to the approach of the National Disability Insurance Scheme that represents a shift to a market-driven approach that puts the money in the hands of the users. However, whether delivery of public services takes this approach or is straightforward outsourcing, Gash believes market stewardship is still relevant and necessary.

“We’re struggling to find a terminology that is acceptable. Using private providers isn’t the same as privatisation – but some people, including politicians, are quite scared of anything involving terms like ‘market’,” said Gash.

The reality is that some jurisdictions get good results from direct public service provision and some get good results by using a diverse range of providers.

“The devil is in the detail,” said Gash.

But in general, creating diversity and having providers compete for the right to provide services can work in a broad range of areas.

“The evidence is strongest in areas like waste management, it’s easy to measure the results, you can see if the street is clean or not and you can also get a good idea of the prices of these services,” said Gash. He says outsourcing waste management in the UK resulted in savings of at least 20-40% with no drop in service standards.

Role of users

Citing the NDIS again, Gash says that the role of users is emerging as an important part of the process.

“Basically people like having control and choice over the services they use, the evidence is that they tend to be more satisfied with a service if they have choice, but quality and health impacts are less certain.

“Giving individuals control of budgets hasn’t necessarily driven transformational changes in health outcomes,” he said.

There are some common problems when trying to get public service markets working well. Gash highlights, for example, that the UK government has for a long time struggled to close local hospitals that are not performing, because people are attached to familiar, local services. He also warns of taking on big changes too quickly.

“If you look around at the programs that have gone for big bang changes they have faced considerable difficulties with levels of provider competition and the market failing to respond quickly to big, new ways of working.”

“Market stewardship is about understanding what types of organisations seem to provide the kinds of services you want.”

It’s also important that governments be very clear on what they’re hoping to achieve.

“A problem we’ve had is we say we’re doing this to drive innovation but then ended up encouraging providers to focus on cost reduction.

“The point here is about learning what has worked and what hasn’t,” said Gash.

He said using private and voluntary sector organisations is often a “sensible thing to do” but it’s not a silver bullet to all the problems of providing public services. Fortunately, good practice is becoming clearer.

“Market stewardship is about understanding what types of organisations seem to provide the kinds of services you want.

“One thing happening increasingly is people are making sure that all providers that might provide a good service know about the opportunities,” said Gash, adding that governments are beginning to advertise opportunities internationally as well. Governments realise that a one-size-fits-all approach won’t work. In some instances, joining up services makes sense but when it comes to government responsibilities such as “checking passports” innovation may play out in cost efficiencies.

Gash emphasised that using the market to provide public services is no panacea but the perception that it will automatically produce negative results is not well founded.

“When anyone has done a big study looking at this, they look for difference in performance between the public and private sector and what they find is that there are good and bad performers in both sectors,” he said.

“Government retains the ultimate responsibility if it’s funding a service and has a responsibility to make sure it’s working, but that doesn’t mean strangling innovation in a way that takes away value for users.”


Fostering and stimulating the service provider market

Tom Gash will be a speaker at IPAA 2015 (Sydney, October 14-15) for the skills for the future session on Market Stewardship.

The past 30 years have seen a shift in how public services are provided with a reluctance to have single providers of publicly-funded services.

There is significant evidence to suggest that contracting has worked well with simpler, transactional services, but with complex services the impact can sometimes be difficult to quantify. The UK Institute for Government has invested significant resources into investigating how to make public sector markets work and how best to professionalise government’s approach to commissioning to maximise the return.

The Market Stewardship session will explore the UK Institute for Government’s findings on how the public sector can manage markets to ensure long term outcomes.

IPAA 2015’s two-day program re-imagines how the public sector might look as a result of Federation reform and explores the skills those working in, and with the public sector, will need in this changing environment.

About the author
Inline Feedbacks
View all comments
The Mandarin Premium

Insights for policy professionals.

Subscribe for only $5 a week.

Get Premium Today