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EUROPP – Why public sector outsourcing is less efficient than Soviet central planning
Since
the 1990s, public sector outsourcing has evolved through competitive
tendering, partnership working (particularly via Public Finance
Initiatives), strategic-commissioning and prime-contracting. Each of
these iterations has promised better public goods and services for less
cost. Their practice, however, has frequently been marked by rising
costs and lower service quality. Abby Innes explains why.The logic of outsourcing is that market-based production is better than public production because the governance of private organisations is more transparent, flexible, efficiency focused and disciplined by owners. But this idea is problematic on two fronts. In the first place the presumption of market superiority is an artefact of public choice theory; it’s not rooted in historical assessment of which regime, public or private, has better produced public goods. In the second, this logic is dependent on ‘first-best-world’ economic theorising: it assumes an efficient market for simple goods, or for goods that can be somehow simplified. Hence for outsourcing to work those archetypal conditions have to exist. While they typically can exist for simple goods and services (the NHS doesn’t grow its own food), the outsourcing markets for complex goods and services characteristically fulfil none of the necessary conditions.
The neoclassical microeconomic logic behind outsourcing operates according to purely deductive-theoretic reasoning: i.e. in chains of logical reasoning that flow from explicit axioms to necessary outcomes, like Pythagoras’s theorem. This method allows for the valuable modelling of ‘small-world’, repetitive and simple transactions but around the essential, complex and interdependent services of the state it introduces some heinous sins of analytical omission. This is a form of argument that does not calibrate itself against observable reality as in other social sciences, including more critical neoclassical economics, but with the axiomatic reasoning or maths that ‘proves’ it. Around complex goods and services, however, reality conspires to render an efficient market impossible.
When we put the market rhetoric of New Public Management to one side outsourcing constitutes the central planning of private businesses, and the success of this venture hinges on the viability of the outsourcing contract as an effective junction of instruction and control. What contract theory tells us is that the more complex the service or good, the longer the duration of the contract and the greater the contingencies or uncertainties that the supplier might face, the less the outsourced tasks are amenable to codification and hence to robust contracts that can adequately protect the buyer.
Such ‘incomplete’ contracts create unanticipated and destined to be high costs for the management and supervision of the ‘non–contractible’ elements relating to service delivery. Frequent contractual failures require repeated (and given a poor bargaining position) expensive renegotiation. Complexity, shifting needs and interdependency are conditions endemic within public service goods and services.
The economics of Soviet central planning tells us that the resulting asymmetries in information and leverage between state and producer are just the start of bargaining games that the state cannot win. Given public funding the state remains both the only partner in the market relationship however numerous the ‘end users’ or rhetorical ‘customers’ may be, but also the continuous bearer of the contractual obligations and financial, legal and political liabilities and costs of a failed supplier: a position unique to the state.
The following market failures are rife in public service markets: high barriers to entry leave public service markets dominated by monopoly or oligopoly firms which render the provider relatively immune from the self–correcting mechanisms of market competition; uncertainty and complexities in contractual requirements create huge information asymmetries between buyer and seller; relationship–specific investments encourage the producer to exploit the loss of bargaining power entailed by sunk costs (i.e. ‘hold-up’ problems); and finally, negative spillovers, that is to say, damaging external effects not reflected in the original price of the transaction are particularly problematic given systemic interdependencies, for example between NHS and social care systems.
The negative spillovers from incomplete contracts in public service outsourcing are exceptionally socially damaging. The hard to codify tasks often intrinsic to a given public service – like ‘care’ – are rationally sloughed off by private providers and left to families, volunteers, charities and other public services to answer. As interdependent services come under satisficing corporate performance, systemic failures become inevitable.
The GCHQ building in Cheltenham was built and maintained by Carillion, which went into compulsory liquidation in 2018, Credit: GCHQ (Crown Copyright)
EUROPP – Why public sector outsourcing is less efficient Soviet central planning
Γιατί στο δημόσιο τομέα η εξωτερική ανάθεση είναι λιγότερο αποτελεσματική από το σοβιετικό κεντρικό σχεδιασμό
Της Abby Innes*
Πηγή για την Ελλάδα : avgi.gr
- Όσο μεγαλύτερα είναι τα απρόοπτα ή οι αβεβαιότητες που μπορεί να αντιμετωπίσει ο προμηθευτής, τόσο λιγότερο τα καθήκοντα της εργολαβίας επιδέχονται κωδικοποίησης, και επομένως ισχυρών συμβάσεων που μπορούν να προστατεύσουν επαρκώς τον αγοραστή.
- Οι αρνητικές παράπλευρες συνέπειες από τις ατελείς συμβάσεις στον τομέα της εξωτερικής ανάθεσης δημοσίων υπηρεσιών είναι εξαιρετικά επιζήμιες κοινωνικά. Τα δύσκολα να κωδικοποιηθούν καθήκοντα, που είναι συχνά εγγενή σε μια δεδομένη δημόσια υπηρεσία όπως η «πρόνοια», αφαιρούνται ορθολογικά από τους ιδιωτικούς παρόχους και αφήνονται
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