With the white paper on public service reform imminent, many on the Left are using the opportunity to discredit the reform agenda begun by Labour. Market-based reforms face massive challenges if they are to succeed in a period with little public money to provide the necessary conditions. But they are the means to achieving better, cheaper services. The government’s broad agenda is right, and it’s time that the market flat-earthers took another look at the evidence.
I will not have been the only one to be baffled by comment pieces by the David Walker (on the PF Blog) and Polly Toynbee (in the Guardian), arguing the perils of market-based reforms to public services. Both pieces refer to the 'extensive trawl of the literature done for John Hutton by the pro-market economist DeAnne Julius only three years ago'. And both claim that Julius 'failed to find any decent evidence that contracting out works as a general proposition'.
I have a great deal of respect for both commentators. But even if one looks hard for the caveats in the Julius report, it is difficult to square their conclusion with the message of the report. Indeed Julius argues that: 'The evidence shows that there are clear benefits, to both users and taxpayers, in subjecting incumbent service providers to competition. The academic literature typically found the cost savings from competitive tendering to be between 10% and 30% (including when the in-house team won the bid) with no adverse effect, and sometimes an improvement, in service quality.' There may be evidence that doesn’t support the conclusion that markets work, but the Julius report emphatically is not it.
Meanwhile, in a similar vein, John Perry, writing on the PF Blog today, takes issue with the idea that compulsory competitive tendering cuts delivery costs. Perry is right to caution that contracting out raises transaction and monitoring costs. But the evidence suggests that, on the whole, these higher costs are offset by greater savings and a more responsive service.
Ultimately, what the sceptics most fear is that, since markets reforms are (in their view) mainly about driving down costs, the quality of service inevitably diminishes also. This would be concerning if it were true. But well-designed commissioning does not sacrifice quality, it improves it. The Australian version of the UK’s soon-to-be-launched Work Programme, for example, achieved the same level of employment outcomes at much lower cost and often with higher levels of service user satisfaction than the previous system.
On the whole then, market-based reform works to raise the quality and lower the cost of public services. The danger is that unless the government can fund sufficient capacity for the market to work, the reforms risk discrediting this important agenda. But either way, the debate needs to shift to a consideration of how to make market reforms work best. Public services should be run for citizens, not producers. It’s time that the market flat-earthers accepted that the champions of public services and producers are not necessarily on the same side.
Ian Mulheirn is the director of the Social Market Foundation
