What has changed?

I wrote this essay in 1995 as part of a Foundation Degree in Social Science. While thinking about the death of Lady Thatcher I decided to read it again all these years later. It is still as relevant today as it was then.

A dose of market reform 

Can market-orientated reforms bring about better efficiency within the public services and what are the drawbacks which would negate any gains made?  By looking at the article in the light of two different models of competition, Schumpeter's dynamic model of competition and the neoclassical model of perfect competition the gains and losses can be seen as certain parts of the public services move from public to private.

 Joseph Schumpeter looked at the capitalistic  market as an ever moving, ever changing entity fuelled by innovation and technological advances.  As a new means of production was created the old was destroyed. This Creative Destruction was seen in a biological way in that the market was constantly evolving into something more efficient, cost effective with better quality products.    The entrepreneur is always looking for a new development ahead of his rival which will improve efficiency and ultimately reduce costs.   Efficiency would also be gained from economies of scale which would involve enlarging the area of operations to produce more output whilst keeping overheads (buildings, equipment) fixed.

The neoclassical model of perfect competition looks for efficiency in a very different way to Schumpeter's model.  Unlike Schumpeter's model of dynamic competition  this market works on the principle of perfect balance or equilibrium which is achieved when supply is equal to demand and the markets are left to determine the price as supply and demand fluctuates.  The market is said to be productively efficient when the unit costs are at a minimum given the technology available.

 Given the two models of competitive markets outline above, how have certain parts of the public services exposed to market-orientated reforms achieved gains in efficiency?  The  health authorities, who Julian le Grand first mentions, have made some efficiency gains within their cleaning services which have been put out to commercial tender.  Bradford Area Health Authority tended out it cleaning contract in the 80s and after first failing in a bid, the contract was eventually awarded to a Taylor plan, an Australian Company, who held contracts  cleaning hospitals around the world.  By working on a global scale, efficiency gains have been made on a local scale, through almost Fordism practices of work, with the knowledge of scientific management and  economies of scale in bulk purchase of machinery and raw materials. By keeping the costs to the minimum given the technology available the company can be productively efficient as well.

 

 Efficiencies could be made in community care, but as suggested by le Grand, the voluntary organisations used in preference to less informed providers are not using their advantageous position and lack motivation to make a profit.

Julian le Grand moves on in his article to two areas of the public services which seem to have improved efficiency.  The grant maintained schools have, through competition, begun to amass a surplus in finances with the balance being maintained between provider and supplier.  Whilst the GP fund holder has been able to make use of his substantial knowledge to capitalise on the market and use his funds more efficiently.

 All the areas of public services which have show a marked improvement in efficiency or a potential for efficiency seem to indicate that market-orientated reforms have had a measure of success. But,  Julian le Grand also argued in his article that for each success in efficiency there has been a price to pay.

 he  health authorities who tendering out the cleaning contracts may still maintain that cleanliness within their hospitals meets their standards but the workforce found that the re-negotiation of their contracts with Taylorplan meant that their rates of pay remained the same but their terms of contract and hours differed greatly under their new employer. 

 Julian le Grand also showed in his article his concern over the possible 'cream-skimming' that might occur in both grant maintained schools and GP fund-holding practices.  Grant maintained schools seem to be heading for success in terms of efficiency but by setting up another tier to the education system, fee paying (private),  grant maintained  and public domain schools there could be a tendency to select pupils who are academically bright to influence league tables in order  to remain competitive.  Children who are perceived to have behaviour problems may  be 'de-selected' as they would be seen as taking up teacher time.

GP fund holders have been cited in the article as another area of possible 'cream-skimming'.  Doctors could refuse to take patients with a poor medical history, the elderly or potential health risk patients (smokers, the obese).  They could also been seen to be adding another tier to the private/public heath care we have now,  aiming to compete with the private sector whilst leaving behind the public sector to inferior medical care.  Although Julian le Grand points out in his article that this form of selection is not at present happening, as the market reforms become more widespread the need to become productively efficient and   eliminate drains on the fund-holders resources, could mean that  the temptation becomes irresistible.

 Externalities, or social costs, are another area which left Julian le Grand unable, in his article to determine if  provision of welfare services are better kept out of a quasi-market situation.  With the presence of externalities  within the welfare service, it (the welfare service), could  never be efficient because the social cost would outweigh the benefits. One area were the externalities seem to be evident was is in the contracted out cleaning.  Not only have the workers suffered by possible loses by being made to work shorter hours they could find themselves unable to claim sickness benefit, maternity benefit and unemployment benefit and in the long run pensions.  The patients also appear to be the losers as the staff are tied to strict work practices and tender loving care doesn't seem to have been budgeted for when tenders were made. Another area of social cost not counted in the efficiency equation is the amount of unpaid work done in the private domain as state provision of community care is reduced or put on the market. This is especially prominent in the area of looking after the elderly and sick who are no longer nursed in  state homes but are placed back into the community.

Other areas of the market-orientated reforms in the public services could also be cause for concern as the markets are left to decided who should benefit from it. Professor Amartya Sen argued that markets generally reflect the unequal balance of power in society and it could be said that by putting public services in the competitive market place it becomes open to inequalities.  The three tier system of education and selection can indeed inhibit life chances of children who are not able to benefit from the financial surpluses that are mentioned in the article.  The patient who attends clinic at a non-fundholding practice may be denied certain treatments or be put to the bottom of the list at a hospital as fund-holders are able to buy into the system quicker or indeed use private clinics for their patients. The inequalities of the benefits of market reform may also be more evident regionally as some areas would be privileged to better services.

The article by Julian le Grand  stated that the changes to public services have not as yet failed but it does seems that any efficiency gains have been made at a cost.  In the case of the health authorities the workers have suffered through new work practices introduced by the global corporation Taylorplan along with the patients who no longer received unbudgeted services.  Any gains to be made in community care have been negated by the use of  volunteer groups unmotivated by profit.  The article does go on to concede that efficiency and savings have been made in two areas, education and GP fund-holders but  reservation was show at possible 'cream-skimming' which could slowly creep in as market competition bites.  Areas of creative destruction and areas of equilibrium within the public services may causing efficiency but the externalities and inequalities  could tip the balance. The article 'A dose of market reforms' seems to indicate that reform in the public services may indeed turn out to be a bitter pill.