The marketisation of social and community services: Finest hour or poisoned chalice for the Productivity Commission?

The marketisation of health, education and welfare is one inquiry the Productivity Commission may well wish it had never been given, reflects Policy Whisperer Paul Smyth of The University of Melbourne.


The above statement may seem paradoxical. After all, is not this a last and unexpected chance to do the ‘unfinished business’ of the economic rationalist era: ending public ‘monopoly’ in social services just as it did with public ‘capital’: the Commonwealth Bank, Qantas, Telstra, public utilities and so on. They may not have had the political stomach for it in the Howard years but with a Treasurer of Scott Morrison’s mettle, could not this be the PC’s finest hour, the completion of its self-proclaimed historic mission?  At last the end of social services and the beginning of human service markets. But what if it’s all too late? What if the politics of economic rationalism have run their course? What if the inquiry exposes the flawed track record of the model in Australia? What if it exposes the way in which the very theoretical model informing the PC mission is being quietly shelved around the world? And what if people finally begin to ask why on earth is an economic policy agency presiding over an inquiry into social governance? Then indeed this would prove the PC’s poisoned chalice.

It is highly likely that when we see the terms of reference the Treasurer will be trying to flog the poor old Hilmer dead horse back onto the social policy track. After all, the Government demonstrated the requisite foolhardiness in the 2014 ‘unfair budget’. A similar audacity informed the Treasury reception of the Harper review: an unqualified approbation of the ‘consumer choice’ model as exemplified by Vocational Education and Training; and Employment Services.

And of course the model has very well placed vested interests in support. If you want to see the private sector view of the future, just go to Deloitte’s web site and download the brochures on contestability.  The sales pitch goes something like this. First you announce that the ‘human services’ (don't use the word social) are pretty much in a state of ‘pre-marketisation’. History is beckoning courageous governments to create a ‘step change’ in reform because, as we all know, in the future government funds can only shrink while costs can only rise. Then you announce that marketisation of social services could achieve the savings that were once achieved with public capital. You proceed to demonstrate your social policy credentials by showing your close familiarity with key service ‘trends’: artificial intelligence and simulation based training, customer and geospatial analytics, remote monitoring wearable devices and smart homes. (Here, of course, you are probably banking that your own limited exposure to social policy research will be matched by that now famed ‘loss of institutional memory’ in government.) Best return to your strengths by emphasising just what you know they want to hear: the savings that have already been made through a ‘reduction in dependence on government services’ and most of all the fact that some ‘governments have successfully exited service delivery entirely’.  Finally you back this appeal to utopia with a state of art list of marketisation tools and share your appreciation of the fact the reform path won’t always be easy, e.g. anticipate challenges with ‘staff transfers’ created by the old world system of staff being in Defined Benefit Schemes. But we can help you with that one too.

But while the Treasury and PC might draw comfort from the fact that for-profit firms like Deloitte and KPMG are enthusiastic supporters of their vision of ‘human service markets’, they would do well to consider the probability that their cosy policy bubble may be about to burst.

In the first place it appears political reality is finally catching up with the Treasury/PC rhetoric around the efficacy of the consumer choice model in the social services. Much of the power of this rhetoric derived from the fact that once the PC had been installed as THE reform agency, social scientists and practitioners could scarce join the policy conversation. Today, however, such has been the scale of model failure that profession insiders are now proving the most devastating critics.

Ross Gittins, for example, highlights the record of corruption and mismanagement associated with child care, employment services, VET and so on as evidence of the kind of ‘money madness’ which will inevitably happen “every time the other-worldly econocrats persuade the government to ‘contract out’ the provision of some government service and invite private businesses in on the act”. Gittins calls this ‘no-brainer’ economics: just wade in with your pocket-rocket model of all markets and propose "getting the [exclusively monetary] incentives right" and "introducing competition" from for-profit providers (such as shonky vocational ‘colleges’). Is this the best economists can do? If so, they're part of the problem and need reforming.

If indeed the Treasury/PC model has lost its political gloss there are also signs that critical social scientists have also got its measure. The Centre for Policy Development’s 2015 report Grand Alibis asks the question of just how many times the reform model has to fail before people get tired of the alibis. Most importantly it charges the model with failing the test of fairness, with the most disadvantaged inevitably becoming the losers in the kind of two tier welfare system the model leads to.

And it is most of all this issue of fairness which will bring down the curtain on the PC paradigm. Thus the OECD’s 2015 Government at a Glance declares: “In the last three decades, efficiency became one of the most important guiding principles of how governments operate and how services are delivered…often putting equity or fairness considerations on the back burner”. Indeed fairness and efficiency were seen to be exclusive. Now they are thought to go together so that “promoting inclusive growth requires strong, inclusive processes and institutions to counteract the forces that produce inequality”.

This should send shudders through the Treasury/PC . Why? Because when the PC itself was constituted in the mid 1990s it was given the extraordinary remit to assume that market efficiency was to be the default position on every question regarding the allocation of resources. No government institution could be assumed to have a role based on any other principle, e.g. equity, fairness, and equality. This remit cast the PC in the role of storm trooper for economic rationalism. Government and community sectors were effectively cast as handmaidens (or as they say today, ‘stewards’) to the market. The shift of thinking at the OECD declares that this era is over. The Commission for market efficiency will obviously remain important but it must now be balanced by a Commission for fairness, equity and equality, which is of comparable authority and status.

So as we wait to see the terms of reference released for this inquiry it would be fascinating to be a fly on the wall at the PC. Is this to be its finest hour? Or a poisoned chalice? Or can it take a lead in initiating a new reform vehicle, which gives social policy an equal say?

Posted by @MsSophieRae.