Why does it occur, when does it work?
Allow me to share a puzzle. Public sector outsourcing (a.k.a. ‘contracting out’) has been increasing in recent decades. It is not the same as ‘privatisation’ because the government retains the role as a funder but it outsources the task to a private provider – which may be a corporation or non-government organisation.
A recent prominent example has been the outsourcing of Mt Eden prison to SERCO. But it is happening elsewhere including charter schools and NGOs operating in the health and social services sector.
The proposed disposal of some of the stock of state housing is not outsourcing – it is really old-fashioned privatisation, although there is a funding dimension via housing allowances. Neither, strictly, are public private partnerships which tend to be (not always successful) funding operations, although there may some consequent outsourcing (as in a BOOT – build, own, operate, transfer – operation). I acknowledge that private businesses outsource too but not their core business. Yet the public sector on occasions seems to.
(Social bonds are a form of outsourcing in which are payments by results. However they are so weird that they require a separate column; an issue is whether the government can specify the ‘results’ sufficiently precisely to get what it wants, and if it does whether anyone would be foolish enough to invest in the scheme. We shall see.)
Why is outsourcing happening? One answer is that it is all ideology. Certainly, governments of the right are more prone to outsourcing than governments of the left. It is difficult to deal with ideological taste – you like coffee, I like tea. If ideology is all there is, we are going to get a yo-yoing back and forth as the political pendulum swings.
Of course each side argues there are gains from their options. Typically there are, but they are offset by downsides which advocates are less likely to mention. The tradeoff is often not carefully evaluated.
Outsourcing sometimes appears to be used to weaken a public sector union. (Legislation and privatisation have also weakened unions over the last thirty years, so it is a part of a trend.) Probably unions improve the conditions of their members, in the case of public sector adding to the cost to the taxpayer. But usually they add to the professional quality of the service that the taxpayer gets. (Sometimes they forget the latter. I was struck a few years back by press releases put out by the PSA that whined – yes, that is the correct word – about government measures reducing their members’ working conditions; and so they were. But there was nary a word of how the public service was suffering.)
As a result, there is often a deterioration in the quality of the service provided. Sometimes it may be deliberate, but often it seems unintentional. In principle the contract between the government and the provider will specify the quality of service but, in practice, ways can be found around the contractual specification. (My favourite example – although not involving outsourcing – was the case of the British target for accident and emergency departments to process victims from the time of arrival. When overburdened, some departments left the patients in ambulances outside, thereby delaying the time they ‘arrived’ in order to shorten the time they were processed.)
The bureaucrats monitoring the contracts keep adding extra rules. For instance some years ago there were small Private Training Establishments in receipt of government funding which paid their principals (who were the owners) salaries in excess of those of the vice-chancellors. So the Tertiary Education Commission limited their top salaries. There appears to be an ongoing cat and mouse game as the public sector sets rules and the private sector finds its way around them.
The rules and form filling (does anyone look at them?) are not only onerous but presumably generate quite a bureaucratic monitoring cost. An explicit one was when the head of the Department of Corrections had to turn up at the Mt Eden prison himself after allegations of slackness there. One would like to believe he had more valuable things to do than sorting out a failed outsourcing.
One of the consequences of these rules is to reduce the effect of professionalism, which while not a perfect regulatory system served us well in the past. The replacement system of accountability via contractualism probably reduces professionalism’s effectiveness. Weakened it may be, but very often it generates the whistle blowing identifying poor quality services; even with lay whistle-blowers there is often a professional lurking behind (fearful that if he or she is too prominent they will lose the career to which they are dedicated).
The notion of outsourcing to charter schools seems to have been imported from America. There is some evidence that the US ones get superior educational outcomes although this is contested. An international survey found that our 15-year-olds are a year ahead of American 15-year-olds on some measurable educational attainments. Suppose that American charter schools added a year to their student attainments. Hooray, but they would only be catching up to the average New Zealand school.
Apologies for this being a list of loose thoughts – more a blog than a column. I have not been able to find much rigorous thinking about outsourcing – is there a government manual which describes when it should be used and when it should not? Contributions welcome but, please, not ideological rants; I have read too many of those already.