The Chickens Come Home To Roost

One of the features of modern commercial life is the way in which the boundaries between the private sector and the public sector have become blurred. The thinking behind this approach is that, whilst the public sector may commission work to be undertaken on its behalf, it by no means follows that the work needs to be delivered by the public sector. It is often asserted that the private sector is in a better position to deliver public services more efficiently.

It is worth unpicking this host of assumptions to look at the constituent parts. To begin with, is the private sector more efficient than the public sector? Efficiency and productivity are elusive concepts in the context of the public sector. By definition, productivity is the relationship between inputs and outputs. However, many of the outputs in the public sector are quite elusive.

For example, take the military, how do we measure the output of a battalion of soldiers in peacetime? Or to take the NHS, how do we measure whether or not it has delivered a healthy population? It is normally the case that, where outputs cannot be defined other than conceptually, we either resort to surrogate measurements (for example, grades attained as a surrogate for an educated population) or we revert to measuring inputs as a surrogate for outputs (for example, the numbers of nurses employed as a surrogate for a healthy society). 

Efficiency is the obverse of productivity. As productivity rises, ipso facto, so will efficiency. However, this is a major flaw in our way of thinking. If we can only measure public sector productivity in input terms, then we are tempted by the view that a more efficient public service is one that costs less. This is the conceptual under-pinning of austerity - ever more productivity savings to ensure less money is spent on public services - which is now starting to get us into a mess.

In a short statement, wrapped in econo-speak, and largely unnoticed in the November 2017 budget statement, the Chancellor announced that the OBR had revised the trend growth path of the economy downwards by 0.5%. This went unchallenged by the Opposition. What does it mean? In plain English, it means that our ability to grow the economy, to increase our prosperity, is lower now than it was in 2007. We needn't look too far to see why that might be the case. Funding restrictions in the NHS are leading to a less healthy workforce. Funding restrictions to transport budgets increase the time it takes to get to work and to undertake our work, if it includes travel. Funding restrictions are delivering a less well educated workforce. It is hard to avoid the conclusion that our reduced productivity has something to do with austerity.

The outsourcing of public services to the private sector has not escaped this trend. We now have a situation where the economy is more stagnant than it has been for a decade, public services have been awarded to the least cost supplier, and the suppliers of public services are now starting to run out of money. The collapse of Carillion, rather than being an isolated event, might be better seen as a portent of things to come. To date, many private sector providers of public services, mainly in the care sector, have been forced to cease supplying the public sector owing to budgetary pressures. We get a different picture if we consider Carillion as the largest to happen to date. The recent profits warning issued by Capita doesn't inspire us with a great deal of confidence.

Just under half of central government services are now outsourced to the private sector. The possibility of a good portion of that going out of business in the next few years is a scenario that we cannot afford not to consider. What will happen if the structure of outsourced services collapses? What will happen if the PFI funded infrastructure bankrupts the companies financing it? How will we cope if the state retreats away from it's core areas?

Stephen Aguilar-Millan

© The European Futures Observatory 2018