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The battle for public service markets

Writing for HuffPost, Mutual Ventures Director Andrew Laird describes the public service market “battle ground” and makes the case for locally driven, balanced markets which engage both public-sector and independent providers.

Our politicians are in a bit of a quagmire in terms of domestic policy. The June election kick-started an important debate on the role of the state – but much of the space usually taken up by sensible discussion is being relentlessly absorbed by Brexit. And the air time that isn’t filled with Brexit is taken up by tabloid friendly (albeit very serious) issues such as MPs’ conduct.

A key domestic “battle ground” should be the role of the market in public services. A pure free market approach, where independent providers play an unrestricted role, is an idea of the traditional right – whilst the traditional left have a preference for state-owned and delivered services. However, the world is more complex than either of these extreme views would have you believe. Both approaches have serious weaknesses. Too laissez faire an approach and you would end up with a multitude of profit focused providers all trying to cherry pick the easiest interventions. Too state centric and there would be no competitive pressure to innovate or drive to satisfy and retain service users.

Until relatively recently, you would have been forgiven for assuming that the debate on the role the market should play in public services had been largely settled in favour of the principles of choice and competition. The last Labour government (under Tony Blair at least) was in favour of market forces and did a huge amount to open up the public service market to a range of providers. This orthodoxy is being challenged now with both of the main political parties moving to the left of their previous positions.

There is no doubt that since the financial crisis the “market” as a concept has been under attack. People feel, with some justification, that the system is rigged in favour of others. The current Government appears torn between the free market instincts of many conservative Ministers and MPs and the more interventionist mood music of the Conservative election manifesto. For the Labour Party under Jeremy Corbyn there is a definite move away from markets and the involvement of independent service providers towards state monopolies, including ambitions to renationalise postal and rail services. So, to varying degrees, the majority view in parliament is that “untrammelled” free markets are not an appropriate model for today’s public services. I would agree with this. In a public service market place there needs to be both innovation fuelling competition but also some facilitation to ensure the poorest or the least well informed are not taken advantage of or indeed left out completely.

So accepting that markets can play an important role – what is the best mix of public and independent delivery?
The truth is there will probably never be a definitive answer to whether public services are better delivered in-house or by independent providers. There are too many variables to do with the specific service in question, the local social and environmental conditions and the team of people delivering the service. The only thing we know for sure is that both public and independent provision can enjoy great success but also suffer catastrophic failure.

I would argue that the best approach is for commissioners to encourage a mixed market of in-house public sector providers, private sector providers and (critically) social enterprises and charities.

The market is dominated by in-house public sector delivery and traditional outsourcing to large scale private sector providers. Both of these have strengths. The public sector brings a strong public service ethos (most of the time) and the private sector focuses on delivering value for money (most of the time) – but both seem to lack something the other has. This is where social enterprises and charities come into their own and must form an important part of a balanced market. They occupy the middle ground between the state and the traditional private sector and have that strong public service ethos but also employ the entrepreneurialism and commercial discipline of the private sector. Equally important is the disruptive effect these organisations can have on the behaviour of the public and private sectors. They are making the public sector think more commercially and private sector providers focus more on staff empowerment and social impact.
So how should this all be managed?

Achieving the right provider mix is not something that can be set at a national level. Local factors such as deprivation levels, local economy etc. have a huge impact on public services. Recognising this, the government is actively devolving power and responsibility to local areas. So far, devolution deals have been struck in nine places including the seven areas that now have elected mayors. Areas with a new mayor include the major urban conurbations of Greater Manchester and the West Midlands. These areas have sufficient scale to merit adopting their own market approaches that will best meet local needs. Commissioners should be assessing the strengths and weaknesses of their available providers and then be working with those providers (public and independent) to co-produce solutions to the range of wicked issues that persistently hold communities back.

The UK has always been a market driven society – but there is no doubt that faith in markets has been severely jolted. Markets are tools, not an end in themselves – but a market approach can still be a huge force for good within the right constructive framework. Local areas face a huge range of truly “wicked” challenges such as identifying the right form of dementia care and tackling issues like youth unemployment. A huge amount of innovative thinking is needed and a locally driven, balanced market which engages both public and independent providers can play an important role.

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