Poorly designed markets in social policy — such as the vocational education system or the National Disability Insurance Scheme — can cause great damage but governments are often slow to act out of a fear of failure, says a longtime commissioner on the Productivity Commission.
“You’ve got to adjust as those issues become apparent,” says Robert Fitzgerald, who has been at the Productivity Commission since 2004.
“The difficulty is that the proponents of those schemes think that’s a failure. My view is it isn’t.
“It’s actually designing the markets — given they are totally designed markets, these are not free markets — in a way that most effectively delivers for the consumers in that particular environment.”
Speaking on a Social Ventures Australia podcast about competition in social services, Fitzgerald highlighted the NDIS and vocational education as two markets that have had problems.
“We allowed the VET market to develop in a way that ultimately has been destructive to students, destructive to many providers, but frankly overall has significant problems as public policy,” he says.
“Those problems were identifiable very early, but the failure to redesign the scheme to mitigate against these sorts of adverse impacts that were starting to emerge — I think we were very, very slow to act.”
Markets ‘a means to an end’
Fitzgerald emphasised that governments should not see markets and competition as goals in themselves, but as a tool that is useful in many circumstances. Since competition became one of the driving concepts in Australian policy in the 1990s, this has sometimes been forgotten.
“Competition is simply a means to an end, and we lose sight of that. What changed was a desire to give consumers of social services greater choice in the services that they were given: the ability to move from one service to another,” he argues.
“If you want to give consumers greater choice, you have to have a service delivery system that enables that choice to be exercised. Competition is the consequence. Many people think it’s the reverse, and some government policy has suggested that. The government has said ‘we’ve got to have competition’, as if competition was the end.
“But the truth of the matter is, if you look at our disability service sector, if you look at child care, it started with a simple notion: consumers, or clients, need greater choice, greater mobility, and from that, competition flows.”
There are some policy areas where competition is not important, and that having one or a few stable, reliable providers is more important for the often vulnerable clients. This is sometimes for geographical reasons — competitive markets rarely work in remote areas, for example. Some customer bases are not able to exercise the choice needed to create a functioning market. In others, having more than one or two providers would be inefficient.
“Competition is not some panacea,” he said.
“We can’t keep trying to force models in areas where it’s not appropriate, and we spend a lot of effort doing that.”
Collaboration and competition
Looking to the future, Fitzgerald believes Australian governments will continue to expand the use of markets in social policy in coming years. It’s fairly typical that only 10-15% of customers in a market will actually move providers, but he thinks this is sufficient to keep them competitive, benefiting “everyone in the market”.
He also hopes to see social services providers collaborating more. There’s a mistaken belief that the introduction of competition means organisations cannot work together on some things, including by some in government.
“That is complete nonsense. It’s not true legally, and it’s not true in any other way that I understand,” Fitzgerald says.
“You can be competitive in terms of pricing, or trying to attract different clients, but you can be collaborative in trying to work out what is best practice, and how you actually raise the quality of services.
“Competition is not contradictory to collaborative approaches. There are many areas in which collaboration is the only way you’re going to achieve long term, sustainable outcomes for people, particularly where there are wicked problems.”
Image source: Social Ventures Australia.