‘Profit or People’? The debate on private sector involvement in public sector services

By Allan Watton on

The utopian view of public sector services being run in-house by the public sector in a manner that all believe to be in the best interests of the population at large, seems to be a distant and hazy memory.

This is akin to buying train tickets for a shilling, an age when we could all leave our homes unlocked, and a time when every public sector decision didn’t come with an austerity caveat.

This is not to say (or imply) that public sector services are no longer run in the public’s best interests. I believe in many circumstances that they are, albeit within the financial constraints that are being imposed on those services.

However, there are a small number of public sector purists who, in recent years, have campaigned against privatisation or any private sector involvement in public sector services. And, after some regional ‘hearts and minds’ wins by these groups, I believe it is important to try to shine a spotlight on their argument to debate where the public’s best interests really do lie.

I should point out that this is not a political rant. It is a considered view by someone who has worked on hundreds of public and private sector strategic partnerships over the last 20… ahem… years.

We have written previously about the public interest group ‘We Own It’ and their viewpoint on private sector involvement in public sector services. In fact, it was a recent article of theirs that caught my eye and inspired this article. Their post-election viewpoint is one of fear of a ‘flood of new privatisations’ from a Conservative Government now unshackled from their Liberal Democrat sanity checkers.

They talk of the NHS, Lloyds Bank, and they may have something to say about the RBS sell-off that was announced earlier this month as well. Perhaps they will see the share movement in the UK’s leading outsourcing companies as evidence of impending doom. But is private sector involvement really that bad a thing? Is it a move in the right or the wrong direction?

The argument against private sector involvement in public sector services

Organisations like We Own It focus on the inherent purpose of any private sector organisation – to make money for itself and its shareholders. While it may not be their overriding intention, their writing seems to hold up the ‘profit motive’ as incompatible with the ideal goals of the public sector – to supply a good quality service by the most cost-effective means. I may be interpreting this incorrectly, but they seem to suggest that profit is a fundamental mismatch, contrary to all our best interests. And, while their research may be correct, their conclusions seem to be directed towards a particular ‘private sector is bad’ agenda.

Experience has evidenced that while cultural and service expectation mismatches between private sector strategic partners have been identified in a number of specific cases, some of which we have highlighted in our articles, there is no reason why both private and public sector partners cannot both achieve their reasonable outcomes from such a relationship.

We Own It state on their website that private sector involvement means your services get worse, costs go up, there is less accountability, staff in the public sector are undermined, and it’s difficult to come back from an outsourced position. In some cases this is true and can be evidenced. But the same issues can also be equally evidenced where public services are retained in-house. But We Own It make no mention, or provide any supporting evidence, of that.

These claims run contrary to the aims of any outsourced relationship where partners are commissioned for their ability to run public services more efficiently and collaboratively, injecting more innovation and specialist talent, to save money and retain or improve service levels.

And, of course, there are also those special projects where the expert skillset required for success simply is not practical or affordable to be available in-house. Often, this is why it is seen by some public sector organisations that outsourcing is not only a preference – but a necessity.

Outsourcing is also not simply a product of austerity, though, of course, the drive to cut costs has forced more local authorities and public bodies to seek increased efficiencies in their services. Outsourcing is also a way of tapping into a wider pool of strategic skills and knowledge to review what is already good about public services and to enhance that operating practice, and where they are challenged, to improve the way the services are run now and into the future.

There are of course numerous examples of where such outsourced relationships did not produce the results planned for at the outset, but there are also a number of success stories that prove the intent of private sector involvement.

To privatise or not? Is it really that black and white?

The position that organisations like We Own It seem to take, from how I read their information, is to attempt to polarise the argument – to suggest that you are either for people or for profit, and that the two cannot be mutually compatible.

From both an experience and evidence perspective, I’m here to say that this is just not the case. Yes, the private sector wants to make a profit, and yes, we all want the public sector to be run more efficiently. On the face of it, these can seem incompatible – until you recognise that it’s not ‘price’ but ‘value’ that needs to be optimised.

To not think this would be to believe that cheapest is always the best. But we all know from experience that this is rarely the case. Investing in a private sector partner, one that is able to achieve leaps forward in innovative service delivery, and set in place a plan of action that will guide the future of that service, has to be better than simply maintaining the status quo. While the price of this expertise may be higher on occasion, the potential for significant cost-savings and added value may also be greater.

In these cases, doing ‘nothing’ or something that is no more than trimming the edges means a more costly future. Private sector involvement in public sector services is not a black and white issue: it will sometimes fail and sometimes succeed. There will be some areas where it is or is not appropriate, but the value of the core goal of outsourcing is irrefutable: it is to save money and ideally use innovation to improve service at the same or lower cost.

Can the Government assuage such worries?

Is there an alternative? We need to encourage greater innovation, higher standards, realistic expectations, clearer accountability, contracts that encourage the right behaviours and plainly communicate ‘what good looks like’ for service delivery.

Before we get onto how the Government could support their departments and agencies better, it is useful to note that often the key reason a lot of these private sector partnerships fail is due not only to a private sector provider being less than transparent in its motives, or failing to deliver adequate service levels in the eyes of the service users, but that the service user was unclear about its expectations in the first instance.

Most service users are good at communicating their aspirations; less clear is what quantified objectives and outcomes they actually expect from the service provider. However, the service provider, if it is a specialist in its field, is under a ‘duty to warn’ the service user of any expectations that aren’t clear.

They also have to articulate to the service user what the consequences of this lack of clarity are likely to be in both the service delivery itself, and the lack of alignment that more often than not occurs. If the service provider fails to ‘warn’ the service user of these consequences in an appropriate and timely manner, then it is for the service provider to remedy this position at its own cost.

But what can the Government do differently? Encourage more investment in the Intelligent Client Function (ICF) teams to drive maximum value from these relationships on an ongoing basis through the lifetime of the relationship. The Government often complains it wants ‘better, faster, cheaper’. But without front-end investment, you can only practically achieve two out of the three – and not for a sustained period. At some point you have to stop ‘trimming the edges’ and invest to innovate and change the shape of a service, thus gaining operational savings down the line.

So, someone has to invest in the services. This is often perceived to be at the door of the private sector because of the delayed financing recognition and cost amortisation benefits this can bring to a public sector department or agency. Alternatively, the one thing that the Government can and should do to answer the worries of such anti-privatisation movements, is to intelligently invest more and take a longer term view of investing to reshape public sector service delivery as a whole, instead of letting each agency fend for itself and scramble around trying to fund these changes.

The upfront investment in services may seem completely contrary to what every fibre of a Conservative MP’s being is telling them to do so close to the end of an election that was largely fought on the basis of ‘austerity’, but we need to invest now, intelligently, to produce greater savings, or prevent greater losses, in the future.

A policy of looking for ways to cut costs has got us so far, but there comes a point where continued short-term wins will only be likely to result in longer-term pains. It is now time for the Government to put its hand into the relevant budgetary purse and to either invest in reshaping services, or deal with the naysayers on private investment in public services by investing in better resourced governance and ICF teams to ensure that maximum value is driven from public-private sector partnerships. Significant transformations need to take place in the way the government delivers its services, the people it entrusts with the responsibility of delivering them, and to make some tough streamlining decisions that could even see more combined or greater collaboration/sharing of knowledge. A piecemeal approach to investment or an attitude that ‘more cuts’ is all that’s needed is already causing irreparable harm in some areas, such as social care.

Private sector involvement on its own is not perfect. There have been some costly mistakes along the way, but nor is the answer to abandon public sector service delivery by the private sector and go back to the insular days when everything was handled in-house for better (or in some cases, for worse).

The answer is to learn from what in-house public service delivery does well and what private sector delivery does well. We need to identify where challenges exist in each of those areas. Then we need to share the knowledge, build internal capability for services that can and should be retained in-house, and build capability to drive maximum value from private sector providers through strong intelligent client functions. Positive results can then be replicated, and service levels can be increased, while published success stories and cost savings do all the talking. So in practical terms, why should anyone care about who delivers the services providing (a) social values and the right culture is being upheld and (b) they are driving best value for the taxpayer?

But if public sector service users aren’t managing the process of private sector service delivery correctly, that on its own isn’t a reason to cut the umbilical cord of private sector involvement and then blame the private sector for ‘taking advantage’. The barometer for who delivers public sector services should be provided by the (independent) evidence of who can deliver the most innovative, cost-effective and highest service levels for the funding available, whilst maintaining social values. I am an open fan of a ‘mixed economy’ model, combining the best of both in-house and private sector service delivery. Managed well, everyone benefits – both as taxpayers (funders of the services) and citizens (users of the services).

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