Behind the desire to enlist private firms in public service delivery lies the assumption that thereby efficiency will be improved. The sense of frustration – perhaps panic is a better word – is palpable. No one would disagree that innovation is needed. Although measurement is hard, particularly where quality is involved, the best guess of the Office of National Statistics is that public-sector productivity has fallen in the last decade. As a recent report from the Work Foundation points out, services facing a triple whammy of shrinking public spending, expanding service demands and a broad reform agenda are now expected to produce nothing short of a ‘productivity miracle’ .
But hang on. Is the private sector really the place to find it? After all, over the decade of lost productivity the public sector has been subjected to a relentless barrage of incentives, targets, outsourcing and performance management imported directly from the private sector. If 10 years of this haven't made things any better, do we really need more of it?
The truth is that this kind of ‘efficiency’ is a false economy that exacts a very high price. What the private sector is good at (although that’s hardly the right word) is service industrialisation: mass-producing centrally designed service ‘packages’ (as they are tellingly termed) at apparently low cost. Unfortunately the low cost is a delusion. Because they are not-very-good-to-awful, the real cost is actually very high – it's just that it's ‘saved’ from citizens who don’t get what they need and have to come back or go somewhere else to get the problems solved that weren’t met first time round.
Albeit fashionably souped up by IT, this is industrial-age service, as producer-centred as anything in the traditional public sector. It is deliberately impersonal, designed to turn customers of banks, retailers and telcos into standardised transactions that can be monetized and turned into corporate profits. Customers are a means to an end, and that end, as taught by today’s governance norms, is to capture as much value as possible from the other stakeholders, including customers, and transfer it it to shareholders’ pockets with minimum fuss and maximum speed .
That is worth spelling out, because it helps explain the appalling scandal of the UK’s care-homes. Care homes used largely to be run by local authorities until a wave of private-equity buy-outs took them private in the noughties. Seventy per cent of homes are now privately run. In a sub-bubble of its own, banks fell over themselves to lend to investors who knew nothing about care but were attracted by property, the prospect of long-term government contracts and increasing demand as the population aged.
Before the bubble burst in 2008 care homes were changing hands at stratospheric valuations. Companies that had taken on mountains of debt now found themselves facing falling property prices and contracts that were less valuable as local authorities explored ways of keeping healthier elderly in their own homes longer. Austerity added to the pressures, with councils refusing to raise, and in many cases cutting, the fees they were willing to pay.
The sector is now in ruins, with banks and other lenders controlling companies caring for thousands of people in residential care. Southern Cross, the UK’s largest UK care-home operator with 30,000 elderly residents, is struggling not to join them. As privately-owned homes thresh around to stay afloat, they have cut standards and costs; a survey by the FT found that in the private sector care is often worse, wages lower and turnover higher than in the public.The cost in human terms can hardly be exaggerated. One manager told the newspaper: ‘It’s all purely to do with making money and not looking after people.’ And this before the cuts really begin to bite.
Industrialised service designed to satisfy shareholders rather than customers – a classic example of Umair Haque’s thin or fake value – is obsolete and unfit for purpose anywhere, kept alive by an unholy alliance of management consultants and IT vendors; in personal service it is a disastrous oxymoron.
As even The Economist recognises (although supporting more private-sector involvement in public services), ‘the industrialisation of patient care often depersonalises the process of treatment’, causing people to lose faith in it and thus – since healing is the ultimate participatory venture between physician and patient – reducing its effectiveness.
Let me spell it out: this kind of ‘efficiency’ makes matters worse. Sure enough, patients who now get an average of just eight minutes with their GP are beginning to complain: just 45 per cent would recommend their local GP surgery compared with 60 per cent a couple of years ago.
Of course, it doesn’t have to be like this. At heart service is a matter of design, not ideology, although as we have seen the shareholder-first dogma militates against it. Some enlightened private-sector companies offer excellent service – Aviva is learning fast, for example – just as a number of public-sector organisations do, using exactly the same principles of finding out exactly what demand is, then designing a system that delivers it.
We need a thousand flowers to bloom in the public services, for sure. But the real obstacles to that are fundamentalist free-market ideology and ignorant central planners, not public-sector intransigence. The straightjacket is central specification of method – shared services, customer-service call centres, massive computer databases – rather than exclusion of the private sector. If the private sector finds itself unwelcome, it is because it has disqualified itself.