Chalk + Talk: Privatisation and public services

Both the current and previous governments have experimented with different ways to improve standards in public services.

Changing management structures, increasing funding, target setting, privatisation, and reforming regulation have been amongst the methods adopted, with mixed successes. As part of our ESRC sponsored Chalk + Talk series, Sir Julian Le Grand, Professor of Social Policy at the London School of Economics, discussed the pros and cons of each of the strategies, together with the success stories and failures he has experienced whilst advising successive governments.

Professor Le Grand discussed options for dealing with public service institutions that are performing poorly. Previous governments have attempted to generate improvements by changing management and leadership structures, or by making additional funding available; but these options often proved relatively ineffective. Instead, governments have needed a source of pressure that is external to the public service institution in order to drive improvements. Professor Le Grand discussed two sources of external pressure in particular.

A first option is to set targets as a way of managing the institution’s performance. Using targets as a source of external pressure was a common method utilised by the previous Labour government. The method was frequently successful in setting out what it intended to do: the NHS met a lot of its targets; and using targets to drive improvements was looked upon favourably by many in Government.

Others, however, were worried by the ‘toxic side-effects’ generated by target-setting. These included distortions caused by prioritising the target over other, also important – but not explicitly targeted – aspects of service provision. Providers might alternatively meet the ‘letter’ but not the ‘spirit’ of the target. The biggest problem, however, was the demoralisation created by targeting for public sector workers. Doctors, nurses and other public servants were prone to becoming highly demotivated, faced with the stresses and pressures of meeting strict targets that were not always consistent with their perceptions of what should be prioritised.

Professor Le Grand also discussed a second possible source of external pressure: to introduce competition to existing service providers with the creation of new institutions. Under the previous and current governments, these new institutions took various forms. Free schools, academies, and independent trusts – such as Doncaster Children’s Services Trust – have been created with the intention of competing with incumbent service providers.

Key questions remain, however, on precisely what form these new institutions should take. Private companies, not for profit organisations, and mutuals could all create competition. The involvement of private companies in the provision of key services – such as health and education – has, however, been met with considerable opposition. Concerns focus on whether it is right for companies to be generating profits from such sensitive services. But in some sense all service providers generate a profit for someone: members of staff get paid, and sometimes handsomely.

There is one aspect of this concern that Professor Le Grand sympathises with, however. Shareholder organisations have a single motivation: to maximise value for the shareholders. With other types of organisation – such as employee-owned mutuals – there is a complex of motivations. The employees that own mutuals may also be prey to the same temptations to exploit the market for themselves. But although mutuals may still be driven by the self-interest of those that own them, it is likely that this self-interest is tempered by their other motivations – such as a wish to provide a high quality public service. Employees may have a more complex set of motivations than shareholders. It may be, therefore, that mutuals have an important role to play in providing competition for existing public service providers, and improving standards.

Podcast of the event:


Alongside this blog, you can catch up on Professor Le Grand’s Chalk + Talk on Twitter using #SMFchalktalk or by listening to our podcast above.

Chalk + Talk is the SMF’s popular lunchtime seminar series, run in partnership with the ESRC. Chalk + Talk brings the best policy output from the world of academia into the heart of Westminster.

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