Can the private sector deliver public services?
Press release issued: 19 June 2009
The private sector has an important role to play in the delivery of public services, according to a new report by Professor Paul Grout of the Centre for Market and Public Organisation (CMPO).
The private sector has an important role to play in the delivery of public services, according to a new report by Professor Paul Grout of the Centre for Market and Public Organisation (CMPO). However, he argues that the desire to be profitable can be damaging in some cases, generally in public services where staff are motivated, not just by financial reward, but also by a desire to serve the greater public good.
Entitled Private Delivery of Public Services, the report looks at three models of private-sector involvement in the delivery of public services:
· Public-private partnerships (PPPs), including outsourcing and Private Finance Initiative (PFI) partnerships
· Not-for-profit organisations.
The report shows that there are good theoretical justifications for each of the models of delivery, but ‘political economy’ issues around the incentives of public officials are also important. In particular, private delivery should always be compared with feasible public-sector alternatives. Otherwise, it is likely that the contribution made by the private sector will be underestimated.
In the 1970s, the public sector dominated the delivery of public services to such an extent that in most countries outside the United States, the terms ‘public services’ and ‘public sector’ became almost synonymous. Since then, there has been a move away from this position and the private sector now plays an ever-growing and diversified role in the delivery of public services around the world.
The beneficial aspects of the full privatisation models that have been adopted on a large-scale around the world since the 1980s are well documented. But there are also limitations, and it is these that have focused attention on partnership and not-for-profit models.
According to the report, the gains from outsourcing and PFI partnerships have proved beneficial in some areas, notably construction, but the experience in other sectors, particularly information technology, has been negative. The cost of PFI partnerships seems roughly equal to traditional public-sector procurement, yet the former seem to be far more likely to deliver on time.
The full benefit of PPPs can only be assessed when the situation is compared with actual public-sector investment. Politicians frequently restrict expenditure to a point where public delivery is associated with poor quality assets but PPPs provide a mechanism to circumvent this problem. The United States, for example, is turning to PPPs to modernise its transport structure.
In contrast, though there is detailed and careful theoretical research on the benefits of not-for-profit organisations, this analysis is not supported by the data at present. Not-for-profit firms may attract individuals who work beyond what is explicitly or implicitly contractually required. But to date there is no evidence that these people only provide this when they work in a not-for-profit environment. Indeed what evidence there is suggests the opposite.
Professor Grout concludes that not-for-profit delivery can be appealing to politicians but the evidence suggests that its justification as a method of delivery has yet to be proven.