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What a waste

Tue, 22nd Dec 2015

The outsourcing of public services is massive business, worth £100bn or more to the private sector at the beginning of this decade. And the impetus shows no sign of slackening as, following the lead of the centre, more and more cash-strapped local authorities struggle to cut costs and ‘increase efficiencies’.

But, as a slim new book from the team at Manchester’s Centre for Research on Socio-Cultural Change (CRESC) makes clear, outsourcing is much more than a large business pockmarked by fiascos and scandals (Atos’ work capability assessments, tagging of fantom prisoners by Serco and G4S, Capita’s inability to fulfill its contract to supply court interpreters, ditto for G4S and Olympic security in 2012). No longer something applied just to support activities like IT or payroll, outsourcing has now penetrated into the key historic functions of the state (criminal justice, welfare, for example). Economically, the UK operates a kind of ‘franchise state’ in which outsourcing is the default option, with profound implications for local and central democracy, not to mention the quality of services to citizens.

In practice, at the heart of outsourcing is an exquisitely lethal form of Catch-22. One of the first findings to emerge from the original outsourcing contracts in areas such as IT was that not knowing how to do it yourself (the initial sales justification) was the worst possible basis for contracting something out. On the contrary, the only way you can manage an outsourcing contract is to know how to do it yourself – in which case you might just as well do so. Conversely, the minute you can no longer do it yourself, the less able you are to manage the outsourcing relationship and the more dependent on the outsourcer – a crippling double whammy that locks the ‘partners’ into a position of uneasy co-dependence, an unholy alliance of state convenience and corporate opportunism in which the customer/citizen interest comes last.

As the authors explain, the bargain rests on the assumption that it is possible (and better) to separate out policy and strategy from delivery and implementation, with the idea that competition for contracts will lead to increased efficiency and a transfer of risk to the private sector. In reality, the assumption is deeply mistaken for the reason outlined above, and it results in a total absence of the accountability that features so large in the justificatory rhetoric. Thus for governments the split provides a convenient opportunity to shift blame for toxic or ineffective policies on to those who execute it (as with work assessments), while outsourcing firms point an accusing finger at the ineffectiveness of local and central authorities (much criticised by parliamentary select committees and the National Audit Office) to write and manage contracts.

The result, as I have pointed out elsewhere, is the worst of all worlds – arbitrary top-down specification of the service packages that the citizen in all manifestations will receive, largely dictated by cost, by a Soviet-style state, delivered by financialised corporate purchasers of local monopolies in a travesty of the free market. This is sham capitalism and sham localism, in which a small number of private firms benefit from ‘near unassailable competitive advantage from scale and win disproportionate amounts of business’ from a ‘co-dependent state which can only keep the show going by not pressing value for money or risk transfer’.

This is a system designed not to learn. With the main criterion cost and most outsourcing contracts specifying payment for volumes of activity, there is no incentive for innovation and improvement across the system that would drive down the volume of activity, the only sustainable way of reducing whole-system cost. Too often, current outsourcing does the reverse, imposing heavy social costs for private gain. Thus private-sector firms exploiting their ability to reduce pay levels drive a race to the bottom in which the pay of underpaid and overworked care workers (for example) has to be supplemented by payments by the state, while the appalling quality of care increases overall need (and expense) rather than reducing it: institutional stupidity of the highest order.

The CRESC authors, as ever, have done invaluable service in their structural analysis of large-scale outsourcing and its wider political implications. They note the eye-opening rewards generated at low risk and with little investment that have attracted private-equity and other financialised parents, the worst possible owners of providers of essential service. But beyond advocating limits on certain kinds of outsourcing, and prohibition of others, they have less to say on alternatives, or alleviating the problems that the process was meant to remedy in the first place.

The key here is surely to break the structure of inevitability that pervades current practices (‘there is no alternative’) and design a systems architecture that favours the linked imperatives of current public service, ie service improvement and innovation, both desperately needed. That, as John Seddon has outlined, would require politicians and regulators to abandon their current obsession with targets and specific methods like shared services and back offices and instead focus on their proper role, which is establishing and defending the purpose of public service from the citizen’s point of view.

The goal, the exact contrary of today’s practice, is to free up local managers to experiment (innovate) with measures and methods that can be tested against the purpose, establishing real as opposed to sham accountability. In that framework, outsourcing has a respectable part to play. Seddon notes that it is perfectly possible to devise ‘more constructive outsourcing approaches ... that abandon strict contract rules and instead draw up agreements that treat the supplier as part of the same service system, working together for the same purpose’. Gains to the provider follow gains to the whole system, often in the shape of reduced failure demand, effectively turning outsourcing from a large part of the problem into a contributor to the solution. Of course, what role that would leave for the current cast of giant outsourcers, with their factory management methods and financially-engineered structures, is another matter. That will not be a cause for regret for those on the receiving end of their cursory, industrialised service packages, however.


 

 


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User comments

Paul Reading :: 23rd Dec 15
I fear that behind this is the terrible gullibility of our politicians, ever ready to swallow the advice of "experienced senior civil servants" and be flattered by the wealthy CEOs of the outsourcing companies. Tony Blair was particularly awed by the seriously wealthy and so is our new Blair Light and his chancellor
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