Suppose a government institution regularly orders its office stationery from a company which caters specifically to public sector clients. Suppose inquisitive journalists find out that this company is often not fulfilling its deliveries, but sending oversized bills anyway. Tight personal links between the company, renowned for its lavish expense culture, and some of its public sector clients are also uncovered.
We would surely consider it a good thing that these dodgy practices had been brought to light. If some of those responsible were forced to resign, all the better. But would anybody seriously draw the conclusion that this incident demonstrated the evils of privatisation and free market ideology?
Clearly the incident would have nothing to do with the debate about market provision vs. state provision. It would simply be an example of in-house provision vs. contracting out. The controversies surrounding the employment service provider A4e should be seen in the same light.
The criticism of A4e has gone beyond the recent scandal, leading to assertions that the ‘marketisation’ of public services has been taken too far altogether. However, with A4e, the opponents of markets have chosen a very poor example to make their case. In its welfare-to-work role, A4e receives commissions from the government, works towards outcomes specified by the government, and gets paid by the government according to a government-determined formula. Yes, A4e is a private company, but, in this role at least, it is not a market actor.
From a liberal perspective, privatisation has never been an end in itself. It is a necessary, but insufficient condition to meet two aims:
1. De-politicising the provision of a good or service, so that market actors cater to their consumers rather than politicians, bureaucrats and lobbyists.
2. Allowing completely different approaches to providing the good or service to coexist, e.g. different contractual relationships between those involved, different degrees of vertical and horizontal integration, different internal structures and different ownership structures.
The Private Public Partnerships (PPPs) which characterise the delivery of welfare-to-work schemes meet neither of these criteria. From a free-market perspective, it is thus fairly irrelevant whether the government provides job placement services itself or whether it outsources bits to a private sector contractor. Yes, the government is a poor entrepreneur. But devising complex service contracts, getting the incentive variables right, and monitoring them effectively are also entrepreneurial activities.
Unfortunately, there are no obvious ways to remove the government from the welfare-to-work sphere entirely. But a localisation of both the commissioning and the funding would probably go a long way towards meeting the two aims described above.