Competition as a means to an end: supply chains and human services

ESSAY: It’s government’s reputation on the line as human services are increasingly delivered by a corporate supply chain. Nicholas Gruen and Chris Vanstone explore how government can value-add to its supply chain.

Other things being equal, what’s there not to like about introducing more choice and competition in areas in which governments fund and/or deliver human services? That’s the starting point of the PC’s recently commenced inquiry into competition and choice in human services. These services are so important economically to the government’s bottom line and to Australians’ wellbeing that it gives Australia another opportunity to show global leadership in a difficult area – as we did in the glory days of economic reform from 1983 until the early 2000s when uniquely within the Anglosphere, we pursued ‘neoliberal’ economic efficiencies whilst also strengthening the social safety net.

However, this is difficult territory and ideological debates for and against competition won’t get us far – indeed, they could see us embrace some bold new agenda which somehow fails to identify, let alone tackle, the really knotty problems that pervade the area.

We’re hoping Gary Sturgess’s admonitions at the two-day workshop on the subject run by the Harper Review are still ringing in some ears. Listening to the easy encomiums to competition from one connoisseur of ‘high policy’ after another, Sturgess offered this: Stop it or you’ll go blind”. Sturgess was unimpressed with the Procrustean way in which the first draft of the Harper Report rehearsed the advantages of competition and choice without any real understanding of the difficulties of delivery – without entering into the messy world of those on the ground.

Too often in Sturgess’s critique, ‘the market’ becomes a deus ex machina somehow absolving the policy maker from their fundamental responsibilities:

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  • Geoff Edwards

    I agree, Nicholas and Chris, the Productivity Commission’s starting point augurs poorly for a serviceable report. Why on earth would one start such an analysis by assuming that competition and choice are the primary objectives? They are processes, optional means, not ends. With emphasis on “optional”: the Toyota success story was built primarily on collaboration not blind competition. If that is where they are starting, the PC is indeed stuck in Economics 101.

    Surely the prudent rational approach would be to establish the standard of well-being that government (after thorough consultation) identifies should be achieved; and then to iteratively identify the preconditions for achieving that standard. I suggest that families would rather prefer reliability, professional competence and honesty in their providers above competition and choice. What are the preconditions for reliability, competence and honesty? Only organisations with a long-term tenure can build a reputation for reliability and competence.

    The economic reformers tend to underestimate the complexity of their solutions. As you have identified in the referenced blog post, an outsourced system, or a complex supply chain, requires an intelligent brain at the centre. Government requires adequate resourcing and skills in the coordinating centre in order to make a coherent whole out of multiple suppliers, intermediaries, carpetbaggers and lobbyists. Not to mention clients. Instead, most departments now have to suffer efficiency dividends – year after year. The system is programmed to fail and to destroy lives and careers along the way.

    Let the PC work out a solution to the catastrophic failure of competition and choice in the VET sector before they seek to visit a comparable regime upon human services.

    I know I’m jumping the gun somewhat. I look forward to reading the second part of your analysis.

    • Nicholas Gruen

      Thanks Geoff,

      I’m not sure it’s that easy to identify a level of wellbeing and then deliver it. As for professional services, well as well as being part of the answer, professionals are part of the problem. One thing professionals have done is crowd out peers and civil society and they have a crucial role to play.

      You may find Family by Family of interest if you’ve not encountered it before.

      I wrote it up – briefly – here.

  • paul robertson

    Many thanks to Nick and Chris for a stimulating article, which prompts a range of issues for consideration that could be a veritable stream of other articles in their own right, but I hope that focusing on a single key point / question would encourage dialogue.

    Fundamentally is the metaphor of a Ford recall (ie a brand failure) appropriate to government’s role in a public sector market? That is, a single manufacturer’s supply chain is not the same as government funding individual consumers to choose their own providers in a choice model (noting that: each of those providers can act like Ford and improve their individual offerings).

    The supply chain metaphor would hold true when government sub-contracts an alternative provider rather than directly delivering services (ie neither Ford nor government in this instance can ‘outsource’
    their accountability for the quality of a product ‘sold’ under their ‘brand’). However, there is a different relationship between consumer and government for transactions within a ‘marketised’ model
    for public services (for example the NDIS).

    Under the new public sector market models, government roles would include (i) the establishing the market rules (ie the ‘high policy’ settings (ie program objectives & guidelines eg eligibility requirements, funding levels, potentially certification of providers etc) and (ii) regulating the market (similar to its role in any other market). NOT service delivery and hence not accountability for that delivery (other than a watch-dog function to ensure minimum regulatory requirements – think electricians and plumbers)

    There is also a critical difference in the role of a consumer in a market (eg NDIS) or a recipient of a
    monopoly production process (albeit one that effectively utilises available information). In the former the consumer has an opportunity to make choices to select services particular to their individual needs; in the latter the ‘brain’ that controls the whole process determines both need and offering.

    Question: (to go to Geoff Edward’s point): is the assumption that government should be responsible for
    establishing “standard of well-being” a residual vestige of government’s role under an older direct service delivery welfare model (Henry Ford’s you can have any colour so long as…)?

    The strength of a market model is the consumer’s power to set their own standard for well-being. The risks are those of any other market failure: inequality, differential power relationships, information failure etc etc.